BCE INC — Regulatory Filings 2004

Nov 3, 2004

6-K 1 q32004bceform6k.htm Q3 2004 BCE RESULTS HTML PUBLIC "-//W3C//DTD HTML 4.01 Transitional//EN" Untitled Document

SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549

FORM 6-K

REPORT OF FOREIGN PRIVATE ISSUER

Pursuant to Rule 13a-16 or 15d-16 under the Securities Exchange Act of 1934

For the month of: November 2004 Commission File Number: 1-8481

BCE Inc. (Translation of Registrant’s name into English)

MARKER FORMAT-SHEET="Para Flush"

1000, rue de La Gauchetière Ouest, Bureau 3700, Montréal, Québec H3B 4Y7, (514) 397-7000 (Address of principal executive offices)

Indicate by check mark whether the Registrant files or will file annual reports under cover of Form 20-F or Form 40-F.

Form 20-F Form 40-F X

Indicate by check mark whether the Registrant by furnishing the information contained in this Form is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.

MARKER FORMAT-SHEET="Left Head Bold"

Yes No X

If "Yes" is marked, indicate below the file number assigned to the Registrant in connection with Rule 12g3-2(b): 82-_____.

Only the BCE Inc. Management's Discussion and Analysis for the quarter ended September 30, 2004 and the BCE Inc. unaudited interim consolidated financial statements for the quarter ended September 30, 2004, included on pages 2 to 30 and 31 to 41, respectively, of the BCE Inc. 2004 Third Quarter Shareholder Report filed with this Form 6-K, and the document entitled "Reconciliation of Canadian Generally Accepted Accounting Principles ("GAAP") to United States GAAP" filed with this Form 6-K as Appendix A, are incorporated by reference in the registration statements filed by BCE Inc. with the Securities and Exchange Commission on Form F-3 (Registration No. 333-12130), Form S-8 (Registration No. 333-12780), Form S-8 (Registration No. 333-12802) and Form S-8 (Registration No. 333-12804). Except for the foregoing, no other document or portion of document filed with this Form 6-K is incorporated by reference in BCE Inc.’s registration statements. Notwithstanding any reference to BCE’s Web site on the World Wide Web in the documents attached hereto, the information contained in BCE’s site or any other site on the World Wide Web referred to in BCE’s site is not a part of this Form 6-K and, therefore, is not filed with the Securities and Exchange Commission.

CONTENTS
MD&A	2
About Our Business	3
The Quarter at a Glance	4
Financial Results Analysis	9
Financial and Capital Management	21
Risks That Could Affect Our Business	27
Our Accounting Policies	30
Supplementary
Financial Information	30
Consolidated
Financial Statements	31
Notes
to Consolidated Financial Statements	34

| In this MD&A, we,
us, our and BCE mean
BCE Inc., its subsidiaries and joint ventures. All amounts in this MD&A are in millions of Canadian dollars,
except where otherwise noted. Please refer to the unaudited consolidated financial statements for
the third quarter of 2004 when reading this MD&A. We also encourage
you to read BCE Inc.’s MD&A for the year ended December 31, 2003
dated March 10, 2004 (BCE 2003 MD&A). You will find more information about BCE, including BCE Inc.’s
Annual Information Form for the year ended December 31, 2003
(BCE 2003 AIF) and recent financial reports, on BCE Inc.’s
website at www.bce.ca, on SEDAR at www.sedar.com and on EDGAR at www.sec.gov. A statement we make is forward-looking when it uses what
we know and expect today to make a statement about the future. Forward-looking statements may include words such as anticipate,
believe, could, expect, goal, intend, may, objective, outlook, plan,
seek, strive, target and will. | Management’s
Discussion and Analysis This management’s discussion
and analysis of financial condition and results of operations (MD&A)
comments on BCE’s operations, financial condition and cash flows
for the three months (Q3) and nine months (YTD) ended September 30, 2004
and 2003. ABOUT FORWARD-LOOKING STATEMENTS Securities laws encourage
companies to disclose forward-looking information so that investors
can get a better understanding of the company’s future prospects
and make informed investment decisions. Unless otherwise
mentioned in this MD&A, the outlooks provided in the BCE 2003
MD&A dated March 10, 2004 remain unchanged. This MD&A contains
forward-looking statements about BCE’s objectives, strategies,
financial condition, results of operations, cash flows and businesses.
These statements are “forward-looking” because they are based
on our current expectations, estimates and assumptions about the markets
we operate in, the Canadian economic environment and our ability to
attract and retain customers and to manage network assets and operating
costs. It is important to
know that: forward-looking statements
in this MD&A describe our expectations on November 2, 2004 our actual results could
be materially different from what we expect if known or unknown risks
affect our business, or if our estimates or assumptions turn out to
be inaccurate. As a result, we cannot guarantee that any forward-looking
statement will materialize and, accordingly, you are cautioned not
to place undue reliance on these forward-looking statements. forward-looking statements
do not take into account the effect that transactions or special items
announced or occurring after the statements are made may have on our
business. For example, they do not include the effect of sales of
assets, monetizations, mergers, acquisitions, other business combinations
or transactions, asset write-downs or other charges announced or occurring
after forward-looking statements are made. we disclaim any intention
and assume no obligation to update any forward-looking statement even
if new information becomes available, as a result of future events
or for any other reason. Risks
that could cause our actual results to materially differ from our current
expectations are discussed in this MD&A including, in particular,
in Risks That Could Affect Our Business. |
| --- | --- |
| We
define EBITDA as operating revenues less operating expenses, which means
it represents operating income before amortization expense, net benefit
plans cost, and restructuring and other items. | NON-GAAP FINANCIAL
MEASURES EBITDA The
term, EBITDA (earnings before interest, taxes, depreciation and amortization),
does not have any standardized meaning prescribed by Canadian generally
accepted accounting principles (GAAP). It is therefore unlikely to be
comparable to similar measures presented by other companies. EBITDA
is presented on a consistent basis from period to period. We use EBITDA, among
other measures, to assess the operating performance of our ongoing businesses
without the effects of amortization expense, net benefit plans cost,
and restructuring and other items. We exclude amortization expense and
net benefit plans cost because they largely depend on the accounting
methods and assumptions a company uses, as well as non-operating factors,
such as the historical cost of capital assets and the fund performance
of a company’s pension plans. We exclude restructuring and other
items because they are transitional in nature. EBITDA allows us
to compare our operating performance on a consistent basis. We believe
that certain investors and analysts use EBITDA to measure a company’s
ability to service debt and to meet other payment obligations, or as
a common valuation measurement in the telecommunications industry. |

2 2004 Quarterly Report Bell Canada Enterprises

| EBITDA
should not be confused with net cash flows from operating activities. The
most comparable Canadian GAAP financial measure is operating income which
is discussed in the Financial Results Analysis section of this MD&A.
The tables below are reconciliations of EBITDA to operating income on a
consolidated basis for BCE and Bell Canada. — BCE | Q3 2004 | | Q3 2003 | | YTD 2004 | | YTD 2003 | |
| --- | --- | --- | --- | --- | --- | --- | --- | --- |
| EBITDA | 1,936 | | 1,895 | | 5,733 | | 5,563 | |
| Amortization expense | (769 | ) | (801 | ) | (2,305 | ) | (2,325 | ) |
| Net benefit plans cost | (61 | ) | (44 | ) | (189 | ) | (129 | ) |
| Restructuring and other items | (1,081 | ) | (1 | ) | (1,098 | ) | (1 | ) |
| Operating income | 25 | | 1,049 | | 2,141 | | 3,108 | |
| Bell Canada | Q3 2004 | | Q3 2003 | | YTD 2004 | | YTD 2003 | |
| EBITDA | 1,856 | | 1,817 | | 5,432 | | 5,270 | |
| Amortization expense | (734 | ) | (758 | ) | (2,199 | ) | (2,228 | ) |
| Net benefit plans cost | (55 | ) | (46 | ) | (173 | ) | (135 | ) |
| Restructuring and other items | (1,080 | ) | (1 | ) | (1,096 | ) | (1 | ) |
| Operating income (loss) | (13 | ) | 1,012 | | 1,964 | | 2,906 | |

| We define free cash flow as
cash from operating activities after capital expenditures, total dividends
and other investing activities. | FREE CASH FLOW The term, free cash
flow, does not have any standardized meaning prescribed by Canadian GAAP.
It is therefore unlikely to be comparable to similar measures presented
by other companies. Free cash flow is presented on a consistent basis
from period to period. We consider free cash
flow to be an important indicator of the financial strength and performance
of our business because it shows how much cash is available to repay debt
and to reinvest in our company. We believe that certain investors and
analysts use free cash flow when valuing a business and its underlying
assets. The most comparable
Canadian GAAP financial measure is cash from operating activities. You
will find a reconciliation of free cash flow to cash from operating activities
on a consolidated basis in Financial and Capital
Management. |
| --- | --- |
| Video
services are television services provided to customers through our direct-to-home
(DTH) satellites or by very high-speed digital subscriber line (VDSL)
equipment. | About
Our Business BCE
is Canada’s largest communications company. Starting in the first
quarter of 2004, we report our results of operations under five segments:
Consumer, Business, Aliant, Other Bell Canada and Other BCE. Our reporting structure
reflects how we manage our business and how we classify our operations
for planning and measuring performance. Therefore, in addition to discussing
our consolidated operating results in this MD&A, we discuss the operating
results of each of our segments. See Note 2 to the unaudited consolidated
financial statements for information about our segments. The Consumer segment
provides local telephone, long distance, wireless, Internet access, video
and other services to Bell Canada’s residential customers mainly
in Ontario and Québec. Wireless services are also offered in Western
Canada and video services are provided nationwide. The Business segment
provides local telephone, long distance, wireless, data, including Internet
access, and other services to Bell Canada’s small and medium-sized
businesses (SMB) and large enterprise customers in Ontario and Québec,
as well as business customers in Western Canada through Bell West Inc.
(Bell West). The Aliant segment
provides local telephone, long distance, wireless, data, including Internet
access, and other services to residential and business customers in Atlantic
Canada and represents the operations of our subsidiary, Aliant Inc.
(Aliant). |

3 2004 Quarterly Report Bell Canada Enterprises

| | The
Other Bell Canada segment includes Bell Canada’s wholesale
business, and the financial results of Télébec Limited Partnership
(Télébec), NorthernTel Limited Partnership (NorthernTel)
and Northwestel Inc. (Northwestel). Our wholesale business provides
local telephone, long distance, data and other services to competitors
who resell these services. Télébec, NorthernTel and Northwestel
provide telecommunications services to less populated areas in Québec,
Ontario and Canada’s northern territories. The Other BCE segment
includes the financial results of our media, satellite and information
technology (IT) activities as well as the costs incurred by our corporate
office. This segment includes Bell Globemedia Inc. (Bell Globemedia),
Telesat Canada (Telesat) and CGI Group Inc. (CGI). In classifying our
operations for planning and measuring performance, all restructuring and
other items at Bell Canada and its subsidiaries (excluding Aliant)
are included in the Other Bell Canada segment and not allocated to
the Consumer and Business segments. In Q2 2004, we
took another step forward in simplifying our operations by selling our
64% interest in BCE Emergis Inc. (Emergis) by way of a secondary
public offering. Effective May 2004, we started presenting the financial
results of Emergis as discontinued operations. Emergis was presented previously
in the Other BCE segment. On August 3, 2004,
we acquired full ownership of Bell West by completing the purchase
of Manitoba Telecom Services Inc’s (MTS) 40% interest in Bell West. The products and services
we provide and our objectives and strategy remain substantially unchanged
from those described in the BCE 2003 MD&A. |
| --- | --- |
| This section reviews the key
measures we use to assess our performance and how our results in Q3 2004
compare to our results in Q3 2003. | The
Quarter at a Glance Overall, this quarter
we continued to build momentum on our strategic initiatives and on growing
our business profitably. We improved our revenue growth rate for the third
consecutive quarter reaching 3.3% at BCE and 1.2% at Bell Canada. At the
same time we improved our operating income margins by 0.4 percentage points,
excluding restructuring and other items. We achieved solid operating performance
resulting in strong earnings contribution before restructuring and other
items and substantial free cash flow. In addition, significant accomplishments
in the quarter included Bell Canada’s negotiation of a new four-year
labour agreement with its technicians represented by the Communications,
Energy and Paperworker’s Union of Canada (CEP), the implementation
of our employee departure program, where some five thousand employees
will be leaving Bell Canada, and in September, Aliant Telecom Inc.
negotiated a new collective agreement with its unionized employees, putting
an end to a labour disruption that began in April. While these items help
lay an important foundation for future success, the voluntary departure
program and Aliant’s labour disruption had a significant negative
impact on our earnings results this quarter, reflected through restructuring
and other items and increased strike related costs. In our Consumer segment,
we continued to execute on our strategy of winning the broadband home.
We achieved another quarter of solid revenue growth driven by strong gains
in wireless, high-speed Internet and video services. These gains were
in part stimulated by our bundle strategy which reflected significantly
improved gains compared to the previous quarter. Our focus on profitability
translated into improved operating income, despite some additional acquisition
costs incurred from the accelerated customer wins this quarter. Customer
loyalty remained strong with year-over-year churn improvement across all
our growth businesses. In our Business segment,
we continued to grow our IP-based connectivity and Value-Added Solutions
(VAS) within the SMB and Enterprise markets. These positive trends combined
with a sharp focus on cost control led to strong operating income growth.
Revenues remained flat this quarter reflecting the impact of our exit
from the low margin cabling business and the completion of the Hydro-Québec
outsourcing contract. |

4 2004 Quarterly Report Bell Canada Enterprises

| | In
the Other Bell Canada segment, while the market remains challenging
for our wholesale business, the trend of a slowing rate of decline continued
in Q3. In fact revenues from our wholesale business were essentially flat
compared to last year and, before restructuring and other items, operating
income increased in the quarter, departing from the declines experienced
in the previous quarters of this year. Bell Globemedia
continues to perform well, driven by strengthening advertising revenues
reflecting strong television ratings as CTV Television held 17 of the top
20 regularly scheduled programs (Adult age: 25 to 54) during the summer
season and 15 of the top 20 programs in the first two weeks of the fall
season. Our share of CGI’s revenues increased over last year, primarily
as a result of CGI’s acquisition of American Management Systems Incorporated Inc.
(AMS) in May 2004. |
| --- | --- |
| ● | CUSTOMER CONNECTIONS Wireless –
We grew our wireless subscriber base by 109,000 net additions this quarter,
a solid improvement from the 95,000 achieved in the second quarter of
the year. Net additions were down from Q3 2003, largely as a result
of less aggressive in-store promotional handset pricing offered during
the third quarter compared to last year. With the introduction of our
new wireless billing platform, our focus was to ensure that continuity
of service levels and the orderly billing migration of our existing
customer base rather than aggressively pursuing growth. In total, our
subscriber base reached 4,708,000, an increase of 11.5% over last year.
We achieved the lowest level of churn since the beginning of 1997 with
blended churn of 1.2% and postpaid churn of 1.0%. High-Speed Internet – Our digital subscriber line (DSL) high-speed
Internet business added 96,000 subscribers this quarter growing our
subscriber base by 27.0% over Q3 2003 to 1,766,000. DSL net activations
this quarter were down 8,000 compared to Q3 2003. This related
to lower activations at Aliant impacted by the labour disruption, as
well as the impact of the “double-cohort” reflecting the change
in the Ontario education system whereby two graduating classes entered
university in the same year causing a lift in net additions in Q3 2003
which did not recur this year. Subscriptions to Sympatico’s
value-added services increased by 20,000 to reach a total of 453,000
at the end of the quarter more than double the subscriptions at the
end of Q3 2003. Video – Customer
gains of 33,000 in our video business were almost double the net activations
achieved in Q3 last year and significantly outpaced the growth in the
second quarter this year. Total subscribers at the end of the quarter
reached 1,460,000, 8% higher compared to the same period, making Bell
ExpressVu the nation ’s third largest television
service provider. Network Access
Services (NAS) – Although our NAS in service
increased 24,000 this quarter due to seasonal movement, NAS compared
to Q3 2003 declined by 1%, a similar rate of decline as in previous
quarters resulting mainly from losses to competition and substitution
of wireline with wireless telephone service, as well as growth in Internet
access subscribers which reduces the need for second telephone lines. |

OPERATING REVENUES Revenues reached $4,781 million for the third quarter of 2004 reflecting a year-over-year increase of 3.3% and a third consecutive quarter of improved rate of growth. At Bell Canada this was primarily driven by higher Consumer revenues resulting from strong wireless, Internet access and video services, partly offset by estimated revenue declines impacted by the labour disruption at Aliant, which began in April this year and ended in September. In addition, revenue growth also reflected an increase in the Other BCE segment, particularly higher revenues at CGI resulting from its acquisition of AMS. Excluding the estimated $17 million revenue decline resulting from the Aliant labour disruption, revenues for the quarter increased 3.7% over last year.

5 2004 Quarterly Report Bell Canada Enterprises

| ● | OPERATING
INCOME AND EBITDA We realized operating
income increases in the quarter of $17 million in our consumer segment
and $52 million from our business segment. Total operating income
for the quarter was $25 million, down $1,024 million from the
third quarter last year as a result of the recognition of restructuring
and other items in
the amount of $1,081 million in the quarter. The restructuring and
other items mainly related to the employee departure program which was
announced in June of this year encompassing a total of 5,052 employees
who will be leaving Bell Canada. In addition, the labour disruption
at Aliant had an estimated negative impact of approximately $34 million
on operating income for the quarter. Excluding the impacts of the restructuring
and other items and the Aliant labour disruption, operating income increased
$90 million or 8.6% reflecting revenue growth, productivity gains
and lower amortization expense which more than offset higher costs associated
with volume increases and a higher net benefit plans cost over last year.
Operating income margin improved 1.1 percentage points to 23.8% reflecting
the benefit of our cost containment focus. Our EBITDA for the
third quarter of 2004 grew to $1,936 million or 2.2% higher
than Q3 2003 EBITDA of $1,895 million. This increase was mainly
driven by higher EBITDA in the Consumer, Business and Other Bell Canada
segments partly offset by an EBITDA decline in the Aliant segment, reflecting
the impact of its employee strike. Our EBITDA margin of
40.5% in the quarter was down 0.5 percentage points over Q3 2003
reflecting higher corporate expenses and a lower EBITDA margin at CGI
which more than offset margin improvement at Bell Canada. Bell Canada
achieved an EBITDA margin improvement of 0.4 percentage points to 44.1%
this quarter from 43.7% in Q3 2003. The margin improvement was driven
by better management of acquisition costs per gross activation, particularly
in the wireless business, as well as a greater emphasis on more profitable
contracts within the enterprise and wholesale markets, partly offset by
the estimated negative impact of $37 million of Aliant’s labour
disruption. The negative impact of the Aliant strike on Bell Canada’s
EBITDA margin was 0.7 percentage points. NET EARNINGS / EARNINGS
PER SHARE Net earnings applicable
to common shares for Q3 2004 were $82 million, or $0.09 per
common share. This compared to net earnings of $446 million, or $0.49
per common share in the third quarter last year. Included in this quarter’s
net earnings were net losses of $402 million, or $0.43 per common
share, resulting from the after tax restructuring and other items of $725 million
or $0.78 per share relating mainly to the employee departure program announced
in June of this year, partly offset by net gains of $325 million
or $0.35 per share relating to net gains on the sale of our 16% investment
in Manitoba Telecom Services Inc. (MTS) and our remaining 3.24% interest
in YPG General Partner Inc. This compared to net gains on the sale
of investments and restructuring and other items of $14 million in
the third quarter of 2003. Excluding the impact
of these items, net earnings of $484 million, or $0.52 per common
share, were up $52 million or $0.04 per common share representing
an increase of 8.3% over last year primarily as a result of the improvement
in EBITDA, lower amortization expense and lower interest expense driven
by lower average debt levels in Q3 2004, which were partly offset
by the higher net benefit plans cost. |
| --- | --- |
| ● | CAPITAL
EXPENDITURES Capital expenditures for the
third quarter totalled $811 million slightly up from the same period
last year, while remaining essentially stable at 17% as a percentage of
revenues. The increase of $20 million in capital expenditures reflected
a mix of higher spending towards growth areas of the business and reduced
spending in the legacy areas. Approximately 40% of the year-to-date capital
spending represented investments on our strategic initiatives such as
the migration to one national IP-Multi-Protocol Label System |

6 2004 Quarterly Report Bell Canada Enterprises

| | (MPLS)
network, our VDSL strategy, our DSL footprint expansion facilitated through
the rollout of fibre-to-the-node and productivity initiatives. Capital expenditures for the Consumer segment increased over Q3 2003
to focus on growth projects such as the continued expansion of our DSL
footprint, billing modernization and productivity initiatives, including
additional contact centre tools aimed at improving customer service and
reducing call times. Business segment capital expenditures decreased over
Q3 2003 reflecting better contract management, while SMB capital
spending increased due to higher investments in productivity initiatives
and product development. CASH FROM OPERATING ACTIVITIES
AND FREE CASH FLOW Cash from operating activities
for Q3 2004 totalled $1,828 million, up $10 million compared
to the same period last year. The increase in cash from operating activities
resulted from higher cash earnings and the receipt of $75 million
in the quarter resulting from the settlement of lawsuits against MTS and
Allstream Inc. at the end of Q2 2004 which more than offset
increased working capital requirements associated with the introduction
of the new billing platform for our wireless customers in May of this
year. As anticipated, a higher level of accounts receivable resulted from
planned billing delays which arose during the billing migration process
and continued throughout the third quarter. By mid October invoicing
delays associated with the new billing platform were resolved and accounts
receivable balances are expected to return to more normal levels by year-end. |
| --- | --- |
| ● | Free cash flow of $673 million this quarter brought our year-to-date
free cash flow to $999 million. Our net debt to total capitalization
ratio improved to 42.1% at the end of the quarter from 44.0% at December 31, 2003,
reflecting net debt reduction. The net debt improvement resulted primarily
from year-to-date positive free cash flow of $999 million and net cash
proceeds of $584 million from the sale of our 15.96% interest in
MTS, $315 million from the sale of our 63.9% interest in Emergis
and $123 million from the sale of our remaining 3.24% interest in
YPG General Partner Inc. This was partly offset by business acquisitions
totalling $952 million relating to the purchase of MTS’s 40%
interest in Bell West and acquisitions at CGI and Bell Canada. EXECUTING ON OUR PRIORITIES Setting the Standard
in Internet Protocol (IP) At the end of September 2004, 60% of the
traffic on our core network was IP-based, already meeting our 2004
year-end target and on track for our objective of having 100% of our core
traffic moving on a pervasive national IP-MPLS network by the end of 2006.
During the quarter, we expanded the list of legacy services that we have
stopped selling to new customers to include Bell Electronic Business Network
(BEBN), some business long distance services from the VNet portfolio and
packet services from the Datapac portfolio services. New customers are
now directed only to new IP-based solutions. We also made progress
on our objective of having 90% of customers able to access a full suite
of IP services by the end of 2006. Our DSL footprint in Ontario
and Québec reached 81% of homes and business lines passed by
the end of the quarter compared to 79% at the end of the third quarter
of 2003. This increase was in part due to the deployment of new
high-density DSL remotes which began in April 2004. By the end
of the quarter, we had deployed 139 of these new remotes, on track to
meet our target of deploying 400 by the end of the year. Bell Canada now has
100,000 IP enabled lines running off customer premises equipment (CPE). On July 30, 2004,
the Canadian Radio-television and Telecommunications Commission (CRTC)
approved the tariff for Bell Canada’s Managed IP Telephony
(MIPT) service for Enterprise business customers. This service offers
innovative features, including access to a wide variety of applications
such as point-to-point video, integration with e-mail, click-to-call,
find-me-follow-me, instant messaging and the ability to use multi-media
functions across the enterprise. Several customers in the finance and
government sectors are trialing this new service and 2,600 of our own
employees were using the service by the end of the quarter. |

7 2004 Quarterly Report Bell Canada Enterprises

On August 3, 2004, Bell Canada launched ProConnect, a fully managed service which enables small and medium businesses (SMBs) to share information easily, securely and affordably across the most extensive private IP-based network in Canada. Simplicity and Service During the quarter we made advancements towards our overall objective of delivering simple and innovative integrated communication services to our customers. In our Consumer segment, the number of customers subscribing to The Bell Bundle (a combination of wireless, Internet and video services in one simple offer for customers taking Bell Canada’s long distance services) increased significantly this quarter by over 114,000 almost 70% higher than the level of recent quarterly additions. Since the launch of The Bell Bundle last September, over 313,000 customers have subscribed. During the quarter, 43% of new Bundle activations included the sale of at least one new service. In addition, by the end of the quarter, approximately 115,000 customers had taken advantage of our $5 Long Distance bundle introduced on June 22, 2004. In Q3 2004, Bell Canada announced it was partnering with Aeroplan to deliver Aeroplan miles to Bell Bundle customers. Bundle customers will have the opportunity to accumulate 1 Aeroplan Mile for every $1 spent on high-speed Internet, wireless and video services starting early next year. On September 30, 2004, Bell ExpressVu announced a major overhaul of its service to stimulate growth and reinvigorate the business. Elements of this included new programming repackaging and All-in-One pricing principles that include system access fees and multiple receiver fees previously charged separately. In addition, the channel line-up was simplified by grouping channels by categories (sports, movies, etc) allowing customers to better navigate through Bell ExpressVu’s 400+ channel line-up. Earlier in the quarter, Bell ExpressVu also initiated service on Nimiq 3, a high-powered direct broadcast satellite leased from DirecTV and operated by Telesat Canada, to boost capacity, further enhance signal quality solving the majority of rain fade issues, and to add more unique interactive television (iTV) services. Solid progress was made this quarter in Bell ExpressVu’s deployment of very high-speed DSL (VDSL) to multiple dwelling units (MDUs). By the end of the quarter, we had signed building access agreements with 220 buildings, on track to achieve our year-end goal of 300 buildings. On October 14, 2004, Bell Mobility Inc. (Bell Mobility) became the first Canadian wireless carrier to launch a phone-to-phone video messaging service available on the new Samsung SPH-a680 phone. This service enables customers to send up to 15 seconds of full motion video and sound to other Bell wireless customers with a video messaging phone or any e-mail address. On October 1, 2004, Telesat’s Anik F2 satellite began commercial service and became the world’s first satellite to commercialize the Ka frequency band. This frequency band delivers two-way broadband services enabling high-speed satellite Internet services to consumers and businesses in Canada and the U.S. Olympic Partnership On October 18, 2004, the Vancouver Organizing Committee for the 2010 Olympic and Paralympic Winter Games (VANOC) selected Bell Canada as its Premier National Partner for the 2010 Games renewing Bell Canada’s longstanding relationship with Canada’s Olympic Teams. The partnership secures for Bell Canada the Canadian Olympic Team sponsoring rights to Torino 2006, Beijing 2008, Vancouver 2010 and the 2012 Games, as well as the Pan American Games in 2007 and 2011. It provides us the opportunity to build our brand by associating with one of the world’s strongest and most recognized brands. Sale of MTS In late September of this year, we disposed of our 16% non-strategic interest in Manitoba Telecom Services Inc. (MTS) for $584 million realizing a gain of $217 million. Bell Canada and MTS will continue their commercial relationship, with Bell Canada being the preferred supplier of wholesale services to MTS/Allstream.

8 2004 Quarterly Report Bell Canada Enterprises

Labour Agreements On August 16, 2004, Bell Canada reached a new four-year agreement with approximately 7,100 technicians represented by the CEP. This agreement will expire in November 2007. On September 16, 2004, Aliant Telecom’s approximate 4,300 unionized employees, represented by the Council of Atlantic Telecommunication Workers (CATU), voted to accept a new collective agreement, ending a labour disruption that began in April. This agreement will expire in December 2007. Employee departure program In June 2004, Bell Canada announced a two-phase employee departure program. The first phase was an early retirement (ER) plan and the second phase was a departure plan (DP). Under the ER, eligible employees could receive a package that includes a cash severance, immediate pension, career transition services and post-retirement benefits. Under the DP, employees could elect to receive a cash severance. 3,965 employees of the 7,000 eligible have decided to take advantage of the ER and another 1,087 employees will be taking advantage of the DP. This brings the total of employees who will be leaving the company to 5,052, which represents approximately 11% of Bell Canada’s total employee base (excluding Aliant). Departures will take place beginning this fall. While the majority of employees will have departed by December 31, 2004, some employees will remain for a portion of 2005 in selected areas of our business to ensure an orderly transition. In addition, Bell Canada has put in place the necessary plans by business unit that will allow the transition to a new mode of operations in line with our IP migration initiative. Bell Canada has taken a restructuring charge of approximately $985 million this quarter ($647 million after taxes) relating to the departure program consisting of a cash component of $314 million and $671 million representing the enhanced pension and other post-employment benefits offered in the packages. An additional charge of approximately $75 million relating to the relocation of employees and closure of excess real estate facilities is expected to be recorded in future periods as incurred. Going forward, we expect annual savings of approximately $390 million from these employee reductions, reflecting an estimated cash pay back period of less than one year. These cost savings are a key part of our plan to maintain our leadership in an increasingly competitive industry.

| This
section provides detailed information and analysis about our performance
in Q3 and YTD 2004 compared to Q3 and YTD 2003. It focuses on
our consolidated operating results and provides financial information
for each of our reportable operating segments. | Q3 2004 | | Q3 2003 | | % change | | YTD 2004 | | YTD 2003 | | % change | |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| Consumer | 1,908 | | 1,838 | | 3.8 | % | 5,591 | | 5,335 | | 4.8 | % |
| Business | 1,440 | | 1,440 | | – | % | 4,316 | | 4,311 | | 0.1 | % |
| Aliant | 497 | | 514 | | (3.3 | %) | 1,527 | | 1,532 | | (0.3 | %) |
| Other
Bell Canada | 486 | | 478 | | 1.7 | % | 1,428 | | 1,547 | | (7.7 | %) |
| Inter-segment
eliminations | (125 | ) | (115 | ) | (8.7 | %) | (378 | ) | (357 | ) | (5.9 | %) |
| Bell Canada | 4,206 | | 4,155 | | 1.2 | % | 12,484 | | 12,368 | | 0.9 | % |
| Other
BCE | 682 | | 596 | | 14.4 | % | 2,061 | | 1,900 | | 8.5 | % |
| Inter-segment
eliminations | (107 | ) | (124 | ) | 13.7 | % | (341 | ) | (349 | ) | 2.3 | % |
| Total operating revenues | 4,781 | | 4,627 | | 3.3 | % | 14,204 | | 13,919 | | 2.0 | % |

BY SEGMENT Consumer Consumer revenues in the third quarter grew by 3.8% to $1,908 million and 4.8% to $5,591 million on a year-to-date basis reflecting the continued strength in our growth services, such as wireless, Internet access and video driven by solid gains in the respective subscriber bases of these services. Increases in these revenue streams more than offset steady rates of decline in long distance and local and access revenues. Although overall consumer revenue growth slowed somewhat from previous quarters, this was largely anticipated having fully benefited from the positive effect of a series of pricing initiatives, such as the Bell ExpressVu system access fee and the change in the First Rate My Province plan put in place

9 2004 Quarterly Report Bell Canada Enterprises

| ● | a year
ago. In addition, this quarter we did not see the benefit of the August 2003
power outage in Ontario which contributed to increased long distance minute
usage and wireless usage in the third quarter last year. Wireless Consumer wireless revenues of $389 million
this quarter and $1,104 million on a year-to-date basis increased
11.8% and 15.0%, respectively, compared to the same periods last year.
This increase was achieved primarily from year-over-year growth in our
subscriber base, including the strong sales programs initiated during
the first quarter. To further strengthen
our data services line-up, we recently launched phone video messaging,
the first of its kind in Canada. This new service takes mobile communications
to the next level and gives Canadians the power to capture and send digital
video using Bell Mobility’s 1X digital network. Additional product
innovations this quarter that further customize the mobile experience
include enhancements to ringtone services, such as Make Your Own Tone
and Caller Ring Tune services. |
| --- | --- |
| ● | Video Video service revenues for the third quarter
of 2004 grew to $213 million and to $631 million on a year-to-date
basis reflecting year over year increases of 10.9% and 12.9%, respectively,
compared to the same periods last year driven by year over year growth
in our subscriber base and average revenue per unit (ARPU). Our total
video customer base reached 1,460,000, up 8.0% compared to 1,352,000 customers
at the end of Q3 2003. Growth in video strengthened
with net activations of 33,000 in the third quarter and 73,000 on a year-to-date
basis, once again reflecting accelerated growth since the previous quarter
and significantly higher than the 17,000 and 48,000 achieved for the respective
periods in 2003. The growth in net additions was stimulated by the
continued success of the two TV bundle and the positive response to the
Bell Bundle, as well as initiatives focussed on churn containment which
translated into improved churn for the quarter and on a year-to-date basis
compared to the same periods last year. As of August 1, 2004, Bell
ExpressVu moved to providing services to new customers strictly on a contract
basis; all new video customers must opt for a one or two-year contract. ARPU per month for
video services increased by $1 for the quarter and by $2 on a year-to-date
basis to $48 for each respective period compared to the same periods last
year. The higher ARPU for the quarter was mainly driven by lower programming
discounts since the elimination of this promotional feature with the launch
of term contracts in Q4 of 2003, as well as a higher number of customers
paying the additional receiver charge fee for having more than one receiver.
In addition, the increase in ARPU on a year-to-date basis was impacted
by the $2 to $3 rate increase on specific programming packages introduced
on February 1, 2003 and the introduction of the $2.99 system
access charge for all customers effective April 28, 2003. We continued to see
good churn improvement from our customer retention efforts both for the
quarter and on a year-to-date basis compared to the same periods last
year. While churn for the quarter was slightly up from the previous quarter,
reflective of the seasonality impact of the July Québec move, churn
of 1.1% in the third quarter showed a marked improvement compared to 1.4%
in Q3 2003. On a year-to-date basis churn of 1.0% reflected a 0.2
percentage point improvement over the same period last year. Data Consumer data revenue growth of approximately
20% for both this quarter and on a year-to-date basis was driven by an
approximate 26% increase in our High-Speed Internet customer base. |

10 2004 Quarterly Report Bell Canada Enterprises

| | Consumer
DSL net additions this quarter were lower than Q3 2003 due to the
impact of the ‘‘double-cohort’’ reflecting the change
in the Ontario education system whereby two graduating classes entered
university in the same year causing a lift in net additions in Q3 2003
which did not recur this year. Bell Sympatico value-added services such
as MSN Premium, Desktop Anti-Virus and Desktop Firewall added 20,000 subscriptions
this quarter and 166,000 for the first nine months of 2004, for a
total count of 453,000 as at September 30, 2004 more than double
the end of period subscriptions of last year. Since August, Sympatico
customers can receive free Parental control services to make the Internet
safer for kids. Bell Sympatico VAS net additions reflected the reduction
of paid parental control which was more than offset by the increase in
the MSN Premium Service. Wireline Local and access revenues declined slightly for
the quarter and on a year-to-date basis compared to the same periods last
year mainly due to lower revenues from network access services and lower
SmartTouch features revenues, partly offset by higher revenues from wireline
insurance and maintenance plans. The NAS decline reflected the impacts
of competition and continued substitution of wireline with wireless telephone
service, as well as growth in high-speed Internet access subscribers which
reduces the need for second telephone lines. The SmartTouch revenue decline
was largely due to the lower in service NAS. Long distance revenues
in Q3 2004 and year-to-date were down compared to the same periods
in 2003 primarily as a result of volume declines in domestic, overseas
and US minutes reflecting competition from non-traditional long distance
providers, as well as pricing pressures in domestic long distance rates
partially offset by strong sales of pre-paid cards. Third quarter 2004
volumes and revenues also decreased relative to Q3 2003 as the benefit
from the increase in usage from the August 2003 power outage in Ontario
was absent this quarter. Overall, the average
revenue per minute (ARPM) diminished slightly in Q3 2004 but remained
relatively stable on a year-to-date basis compared to the same periods
last year. |
| --- | --- |
| ● | Business Business segment revenues were $1,440 million
this quarter and $4,316 year-to-date, flat compared to the same periods
in 2003. In each case, increases in wireless revenues and terminal
sales and other revenues were offset by declines in long distance, data
and local and access revenues. Enterprise Revenues from enterprise customers decreased
this quarter as declines in local and access, long distance, data, and
terminal sales and other revenues more than offset increases in wireless
revenues. On a year-to-date basis, revenues declined as local and access,
long distance and data revenue declines more than offset increases in
wireless and terminal sales and other revenues. The data revenue decline
in the quarter and on a year-to-date basis reflected the completion of
the Hydro-Québec outsourcing contract and expected decreases from
our exit from the low-margin cabling business. Despite the overall
decline in data revenue from enterprise customers, our IP-based connectivity
and VAS revenues continue to grow significantly. IP-based connectivity
services grew by 35% this quarter. By the end of the quarter, almost two-thirds
of our very large enterprise customers utilised some element of our VAS
portfolio. Bell Canada recently
signed a significant three-year service contract with Ontario-based Hydro
One Networks Inc. Under the contract, Bell Canada will provide maintenance
and management service for the electric utility’s telephone systems,
data internetworking equipment and cabling infrastructure via a new Bell
product, Enterprise Workflow Management. Hydro One Networks is our first
customer adopting this product, which will allow Bell Canada customers
a simpler and more efficient management of their complex network assets. |

11 2004 Quarterly Report Bell Canada Enterprises

| | There
were also two important contract wins with the Government of Québec.
The first involves the renewal of a contract for the integration and operation
of the province’s digital land records and registry documents platform
and is worth $25 million over two years. In this contract, Bell’s
role has grown from being just the connectivity provider to now including
the systems integration and network management functions. Our work on
this project earned us the first prize in the Government On-line category
at the 2004 Awards of Excellence of the Québec Public Administration
Institute. The second contract, worth $2.5 million, is for the implementation
of an electronic authentication security system and reinforces Bell Canada’s
position as a leading provider of VAS. SMB Revenues from SMB customers increased this quarter
and year-to-date as increases in data, wireless and terminal sales and
other revenues more than offset revenue declines in long distance and
slightly negative growth in local and access revenues. Recent business
acquisitions, such as Accutel Conferencing Systems Inc. and Charon
Systems Inc., led mainly to growth in terminal sales and other revenue
but also led to growth in data revenues. Continued growth primarily in
DSL high-speed Internet access services and value-added services (VAS)
sales also contributed to data revenue growth. Subscriptions to VAS increased
by 23,000 in Q3, close to double the level achieved in all of 2003. Long
distance revenues declined due to competitive pricing pressures and declines
in our payphone business resulting from wireless and Internet substitution. Bell West Bell West continued to grow its customer
base leading to increases in local and access and long distance revenues
both this quarter and on a year-to-date basis. Data revenues increased
this quarter reflecting its growing customer base compared to Q3 of 2003.
Data revenues declined on a year-to-date basis as a result of lower GOA
revenue in the amount of approximately $48 million as this contract
nears completion. |
| --- | --- |
| ● | Aliant Aliant segment revenues of $497 million for
the quarter and $1,527 million year-to-date, declined 3.3% and 0.3%,
respectively, compared to the same periods last year. In addition, the labour
disruption that commenced on April 23, 2004 and concluded on September 20, 2004,
negatively impacted the quarter and year-to-date revenues by an estimated
$17 million and $26 million, respectively. This represents estimated
fewer new installations, fewer wireless and Internet activations, slower
product sales, less data growth and promotional long distance rates. Strong
wireless and Internet services growth for the quarter and on a year-to-date
basis were more than offset by declines in other areas due to the on-going
impact of regulatory restriction, competition and technological substitution. Strong wireless revenue
growth of 14.6% in the quarter and 16.1% on a year-to-date basis over the
same periods last year was driven by a 9% increase in Aliant’s wireless
customer base, including a 30% increase in digital customers, reflecting
the positive response to the extensive dealer supported network, pricing
offers and the expansion of digital cellular service into new areas. In
addition, ARPU was up $3 for both the quarter and on a year-to-date basis
compared to the same periods last year, reflecting the impacts of a higher
percentage of customers subscribing to digital service, higher usage and
increased customer adoption of features. Intense long distance
competition, Aliant’s inability to maintain win-back efforts during
the labour disruption and substitution of long distance calling with Internet
and wireless options by customers resulted in long distance revenue declines
for the quarter and on a year-to-date basis. Consumer minute volumes were
down due to customer losses to competition and the capping of minutes on
certain long-distance plans in late 2003. Business long distance pricing
declines continued to reflect the impact of competitive pressures, as did
long distance volume declines, in addition to a reduction of contact centre
activity. |

12 2004 Quarterly Report Bell Canada Enterprises

Data revenues for the quarter and on a year-to-date basis declined slightly as higher Internet revenues were more than offset by other data revenue declines which were impacted by the scaleback of marketing and sales efforts during the labour disruption, as well as the continued rationalization of circuit networks by customers. The continued increase in Internet revenues stemmed from increased popularity of enhanced services and subscriber growth of 6%, reflecting 23% growth in Aliant’s high-speed Internet customer base. The higher subscriber base reflected the expansion of high-speed Internet service into new areas, attractive introductory offers, an emphasis on bundling with other products and services and a focus on dealer and on-line sales channels. Terminal sales and other revenues for the quarter and on a year-to-date basis declined as a result of slower product sales during the labour disruption and the divestiture of non-core assets in the second and third quarters, which resulted in a reduction in IT service revenue. Other Bell Canada The Other Bell Canada segment revenues of $486 million in the quarter were essentially flat compared to the same period last year driven primarily by the improvement in our wholesale business which achieved flat revenue growth in the quarter in contrast to the declines experienced in previous quarters this year. On a year-to-date basis, revenues were $1,428 million, down $119 million or 7.7% over the same period last year reflecting similar trends of slowing rates of decline in the wholesale business, as seen in the first half of the year. The wholesale revenue decline resulted mainly from lower long distance and data revenues reflecting the impacts of competitive pricing pressures, as well as customers migrating services to their own network facilities. Wholesale long distance revenues were also impacted by our decision last year to exit certain contracts and promotional offers for international switched minutes that had minimal margins.

| Other
BCE | Q3 2004 | Q3 2003 | % change | | YTD 2004 | YTD 2003 | % change |
| --- | --- | --- | --- | --- | --- | --- | --- |
| Bell Globemedia | 302 | 296 | 2.0 | % | 1,015 | 988 | 2.7 % |
| Telesat | 91 | 84 | 8.3 | % | 260 | 246 | 5.7 % |
| CGI | 277 | 203 | 36.5 | % | 745 | 630 | 18.3 % |
| Other | 12 | 13 | (7.7 | %) | 41 | 36 | 13.9 % |
| Other BCE revenues | 682 | 596 | 14.4 | % | 2,061 | 1,900 | 8.5 % |

The Other BCE segment revenues grew by 14.4% this quarter to $682 million compared to Q3 2003. On a year-to-date basis, this segment’s revenues grew by 8.5% to $2,061 million compared to the same period last year. In each case, revenue growth was driven by CGI’s acquisition of AMS in May 2004 as well as higher revenues at Bell Globemedia and Telesat. Bell Globemedia had revenues of $302 million this quarter and $1,015 million on a year-to-date basis reflecting growth of 2.0% and 2.7% respectively compared to the same periods last year. Television advertising grew by 4.8% this quarter and by 8.0% on a year-to-date basis, while print advertising decreased slightly this quarter but increased 1.3% year-to-date offsetting lower production and sundry revenues as a result of the sale of 50% of Dome Productions Inc. in January 2004. Telesat’s revenues grew 8.3% to $91 million this quarter and by 5.7% to $260 million year-to-date mainly as a result of higher Infosat revenues and consulting fees. On October 1, Telesat’s Anik F2 began commercial service and became the world’s first satellite to commercialize the Ka frequency band, enabling two-way, high-speed Internet access services to consumers and businesses in Canada and the U.S. Our share of CGI’s revenues was $277 million this quarter and $745 million year-to-date, or 36.5% and 18.3% higher respectively driven mainly as a result of CGI’s acquisition of AMS in May 2004.

13 2004 Quarterly Report Bell Canada Enterprises

| BY
BELL CANADA CONSOLIDATED PRODUCT LINES | Q3 2004 | Q3 2003 | % change | | YTD 2004 | YTD 2003 | % change | |
| --- | --- | --- | --- | --- | --- | --- | --- | --- |
| Local
and access | 1,395 | 1,410 | (1.1 | %) | 4,175 | 4,200 | (0.6 | %) |
| Long
distance | 589 | 641 | (8.1 | %) | 1,767 | 1,942 | (9.0 | %) |
| Wireless | 727 | 645 | 12.7 | % | 2,076 | 1,803 | 15.1 | % |
| Data | 915 | 906 | 1.0 | % | 2,677 | 2,762 | (3.1 | %) |
| Video | 213 | 192 | 10.9 | % | 631 | 559 | 12.9 | % |
| Terminal
sales and other | 367 | 361 | 1.7 | % | 1,158 | 1,102 | 5.1 | % |
| Total Bell Canada
Consolidated | 4,206 | 4,155 | 1.2 | % | 12,484 | 12,368 | 0.9 | % |

| ● | Local
and Access Local and
access revenues of $1,395 million for the quarter and $4,175 year-to-date,
declined slightly by 1.1% and 0.6% compared to the respective periods
last year mainly as a result of lower network access services (NAS), lower
SmartTouch feature revenues, and the impact of the Aliant labour disruption
partly offset by gains from wireline insurance and maintenance plans and
higher interconnection volumes. NAS in service declined
by 126,000 or 1.0% over the third quarter of 2003 as a result of
continued pressure from growth in high-speed Internet access which reduces
the need for second telephone lines, losses resulting from competition
and business downsizings, and customers substituting wireline with wireless
telephone service. |
| --- | --- |
| ● | Long
Distance Long distance
revenues were $589 million for the quarter and $1,767 million
year-to-date, reflecting year-over-year decreases of 8.1% and 9.0%, respectively,
compared to the same periods in 2003. These declines stemmed from
lower long distance revenues in our consumer and business markets. The
consumer segment reflected lower minute volumes and lower domestic rates.The
business segment was impacted by volume and pricing declines resulting
from competitive pressures. In addition, third quarter 2004 volume
and revenue declines also reflected the absence of the increased level
of minute usage experienced in Q3 2003 as a result of the August 2003
power outage in Ontario. Overall, conversation minutes this quarter declined
4.9% to 4,435 million, and 6.5% to 13,511 million on a year-to-date
basis compared to the same periods last year. The decline in conversation
minutes this quarter was accompanied by a 6.3% lower ARPM to $0.12 compared
to the third quarter 2003. Year-to-date in 2004,
ARPM declined slightly by $0.005 compared to the same period last year. |
| ● | Wireless Wireless service revenues for the quarter were $727 million, up 12.7%
from Q3 2003. On a year-to-date basis, revenues increased 15.1% to
$2,076 million over the same period last year. In each case, the
increase was driven by a rise in the subscriber base and higher average
revenue per unit. Our total cellular
and PCS subscriber base reached 4,708,000 at the end of this quarter,
an increase of 11.5% over last year, reflecting solid quarterly gains
in subscribers and our success in managing very low levels of churn. In
fact, this quarter we achieved the lowest level of churn since the beginning
of 1997 with blended churn of 1.2% and postpaid churn of 1.0%. On a year-to-date
basis, blended churn of 1.3% and postpaid churn of 1.1% reflected improvements
of 0.1 and 0.2 percentage points compared to the same period last year.
This churn improvement was achieved while completing the migration of
our wireless customers onto our new billing platform this May. Since the
migration and throughout the quarter, significant efforts were made to
handle increased call volumes and handling time related to customer growth
and increased billing inquiries, including the hiring of some 600 additional
customer service agents. Including paging subscribers, our total wireless
customer base totalled 5,157,000. |

14 2004 Quarterly Report Bell Canada Enterprises 1

| ● | We
gained 109,000 new customers for the quarter compared to net additions
of 124,000 in Q3 2003. Net additions were down from Q3 2003,
largely as a result of less aggressive in-store promotional handset pricing
offered during the third quarter compared to last year. Net additions
of 296,000 on a year-to-date basis were also lower than the 325,000 for
the same period last year mainly due to our conscious decision to focus
on ensuring service levels and the orderly billing migration of existing
customers onto our new billing platform implemented this May rather than
aggressively pursuing growth. With 87% of net activations
for the quarter, and 82% on a year-to-date basis, coming from post-paid
rate plans, we ended the quarter with 76% of our total cellular and PCS
customer base consisting of post-paid subscribers. Blended ARPU of $50
for the quarter was stable compared to Q3 2004 as a $1 decline in
prepaid ARPU offset a $1 increase in postpaid ARPU of $63. On a year-to-date
basis blended ARPU of $49 was up from $47 compared to the same period
last year driven by a $2 increase in postpaid ARPU. The increases in postpaid
ARPU for each respective period stemmed from higher usage, increased revenues
from data services stimulated by new services, including the 2004
Olympics and the launch of location-based services, higher value-added
services and long distance revenues. |
| --- | --- |
| ● | Data Data revenue
increased by 1.0% this quarter to $915 million but decreased by 3.1%,
to $2,677 million, year-to-date. For the quarter, growth in high-speed
Internet services, revenues related to acquisitions such as Infostream
and revenues from the GOA contract more than offset declines from the
completion of the Hydro-Québec outsourcing contract and our exit
from the low margin cabling business starting in the fourth quarter of
last year. Although legacy data services continue to decline, this was
offset by growth in IP-based services. On a year-to-date basis, growth
in high-speed Internet services and revenues related to acquisitions were
more than offset by lower construction revenues related to the GOA contract,
declines resulting from competitive pricing and volume pressures including
wholesale customers migrating their traffic onto their own networks, the
completion of the Hydro-Québec outsourcing contract and our exit
from the low margin cabling business. The number of high-speed
Internet subscribers increased by 96,000 this quarter and 284,000 on a
year-to-date basis, for a total subscriber count of 1,766,000. Third quarter
additions were slightly lower than the 104,000 achieved in Q3 2003,
largely a result of the impact caused by the labour disruption at Aliant
and the impact of the ‘‘double-cohort’’ reflecting
the change in the Ontario education system whereby two graduating classes
entered university in the same year causing a lift in net additions in
Q3 2003 which did not recur this year. On a year-to-date basis, net
additions amounted to 284,000, slightly up from the 281,000 achieved for
the same period last year. Total dial-up customers amounted to 775,000
at the end of Q3 2004 compared to 892,000 at the end of Q3 2003. Video See discussion under Consumer Segment Terminal Sales and Other Terminal sales and
other revenues were $367 million this quarter or 1.7% higher than
Q3 2003, and $1,158 million year-to-date or 5.1% higher than
the same period last year. These increases reflected higher consumer equipment
sale revenues (wireless handsets, satellite dishes and receivers), partly
offset by slower product sales at Aliant as a result of the labour disruption
and the divestiture of non-core assets in the second and third quarters
which resulted in a reduction in Aliant’s IT service revenue. |

15 2004 Quarterly Report Bell Canada Enterprises

| OPERATING INCOME | Q3 2004 | | Q3 2003 | %
change | | YTD 2004 | | YTD 2003 | %
change | |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| Consumer | 569 | | 552 | 3.1 | % | 1,655 | | 1,548 | 6.9 | % |
| Business | 245 | | 193 | 26.9 | % | 713 | | 582 | 22.5 | % |
| Aliant | 71 | | 104 | (31.7 | %) | 245 | | 307 | (20.2 | %) |
| Other
Bell Canada | (898 | ) | 163 | n.m. | | (649 | ) | 469 | n.m. | |
| Bell Canada
Consolidated | (13 | ) | 1,012 | n.m. | | 1,964 | | 2,906 | (32.4 | %) |
| Other
BCE | 38 | | 37 | 2.7 | % | 177 | | 202 | (12.4 | %) |
| Total operating income | 25 | | 1,049 | (97.6 | %) | 2,141 | | 3,108 | (31.1 | %) |

| | n.m.:
not meaningful |
| --- | --- |
| ● | CONSOLIDATED
OPERATING INCOME Despite Consumer operating
income increases in the quarter of $17 million and $107 million
on a year-to-date basis and Business operating income increases of $52 million
in the quarter and $131 million on a year-to-date basis, our total operating
income of $25 million for the third quarter and $2,141 million
on a year-to-date basis reflected declines of $1,024 million and
$967 million, respectively, compared to the same periods last year.
These decreases resulted mainly from the recognition of restructuring
charges of $985 million related to our employee departure program
and other charges of $96 million consisting primarily of closure
costs for excess facilities, various asset write-downs and other provisions. Excluding the impact
of the restructuring and other items operating income was up $56 million
for the quarter and $130 million on a year-to-date basis compared
to the same periods last year reflecting higher revenue growth and lower
amortization expense, partly offset by higher operating expenses and a
higher net benefits plans cost. Higher operating expenses were driven
by higher costs of acquisition related to subscriber increases in our
growth services, the negative impact from Aliant’s labour disruption
which represented $20 million in the third quarter and $32 million
on a year-to-date basis, as well as higher contact centre agent costs
to support customer service levels and increased call handling time associated
with the success of the Bell Bundle and the launch of the new billing
platform for our wireless customers driving higher than usual call volumes,
particularly in the third quarter. These increases were partly offset
by lower settlement expenses resulting from lower overseas and domestic
rates and volumes. Excluding the negative
impact of the Aliant strike and the voluntary departure program restructuring
and other items, operating income margin for the quarter and on a year-to-date
basis increased by 1.1 and 0.8 percentage points respectively, to 23.8%
and 23.1% respectively. Wireless cost of acquisition
(COA) of $381 per gross activation, improved by $44 over Q3 2003
and reflected the lowest COA per gross activation since 2001, driven
primarily from improved handset pricing and more cost effective marketing
initiatives. On a year-to-date basis, COA of $415 per gross activation
improved slightly as competitive pressure on handset pricing over the
first half of the year was more than offset by more cost effective marketing
initiatives. The COA for video services
increased year over year by $41 to $548 per gross activation for the quarter
and by $74 to $586 per gross activation on a year-to-date basis, reflecting
higher hardware and marketing costs, partly offset by the purchasing power
of a stronger Canadian dollar and lower distribution costs. Hardware costs
increased as more customers purchased second receivers, driven by the
success of our 2TV bundle, while higher marketing costs reflected the
free installation promotion for contract term offers. These costs were
somewhat offset by lower distribution costs that have resulted since the
transfer of all distribution to Bell Canada’s Bell Distribution Inc.
in the early part of the year. Amortization expense
of $769 million for the quarter and $2,305 million on a year-to-date
basis was down $32 million and $20 million, respectively, compared
to the same periods last year. The year over year improvement reflected
the impact of an increase in the useful life of Bell Canada’s
internal use software from 3 to 4 years, effective October 1, 2003,
and the recognition of a nine-month adjustment in Q3 2003 |

16 2004 Quarterly Report Bell Canada Enterprises

| ● | relating
to the completion of the purchase price allocation relating to the repurchase
of SBC Communications Inc.’s (SBC) 20% interest in Bell Canada,
resulting in an increase in capital assets. These impacts more than offset
the increase in our capital asset base driven by prior year capital expenditures. Net benefit plans cost
totalled $61 million for the quarter and $189 million year-to-date,
reflecting year over year increases of $17 million and $60 million
compared to the same periods last year. These increases resulted primarily
from a higher accrued benefit obligation based on our most recent actuarial
valuation as at December 31, 2003. OPERATING INCOME BY SEGMENT Consumer The Consumer segment achieved operating income
of $569 million in the quarter, or 3.1% higher and $1,655 million
or 6.9% year-to-date higher compared to the same periods in 2003.
This growth reflected the increase in revenues which was somewhat offset
by increased operating expenses related to salaries, costs of goods sold
and a higher net benefit plans cost compared to the same periods last
year. Higher costs resulted
from higher COA for growth services driven by higher sales, particularly
in our video business and an increase in the number of contact centre
agents engaged to support customer service levels in our growth businesses.
This increase reflected the need to support increased customer handling
time associated with the Bell Bundle sales efforts and increased call
volumes associated with customer billing inquiries impacted by the implementation
of the new billing platform for our wireless customers introduced in May
of this year. These increases, however,
were somewhat offset by lower settlement expenses resulting from lower
overseas and domestic rates and lower billing rates. Operating income margin
of 29.8% for the quarter was essentially flat compared to Q3 03 and on
a year-to-date basis consumer operating income margin improved by 0.6
percentage points. This reflected the benefit from our focussed efforts
in cost containment, particularly in the quarter where significantly higher
growth in video was achieved and wireless COA per gross activation was
reduced. |
| --- | --- |
| ● | Business The Business segment achieved operating income
of $245 million this quarter and $713 million year-to-date,
reflecting increases of 26.9%, and 22.5%, respectively compared to the
same periods last year despite essentially flat revenue growth. Our focus
on improving profitability in this segment and lower amortization expense
more than offset an increase in net benefit plans cost and led to the
increase in operating income. Once again our success in pursuing productivity
efficiencies within this business resulted in an increase of 3.6 percentage
points to 17.0% operating income margin and a 3.0 percentage point improvement
to 16.5% on a year-to-date basis. In the enterprise unit,
our focus on more profitable contracts, as well as overall productivity,
led to reductions in cost of goods sold and more than offset salary expense
increases related to business acquisitions (Infostream and Elix). Our SMB unit incurred
higher salary expenses and cost of goods sold related to its business
acquisitions (Accutel and Charon). Bell West incurred
higher cost of goods sold related to the GOA contract this quarter but
lower levels on a year-to-date basis. |
| | Aliant Aliant’s operating income for the third
quarter was $71 million and $245 million on a year-to-date basis,
reflecting year-over-year declines of $33 million or 31.7% and $62 million
or 20.2%, respectively, compared to the same periods last year. |

17 2004 Quarterly Report Bell Canada Enterprises

| | The
estimated impact of the labour disruption on operating income during the
third quarter and on a year-to-date basis was approximately $34 million
and $55 million, respectively. This reflected an estimated negative
impact on revenue for the third quarter of $17 million and $26 million
on a year-to-date basis. As well, operating expenses were negatively impacted
by an estimated $20 million in the quarter and $32 million year-to-date.
Costs incurred in the second quarter of 2004 consisted primarily
of security requirements and property repairs to enable operations to
continue with relatively few interruptions and to ensure the safety of
employees, as well as up-front costs to train and equip employees for
their new roles. In the second quarter there was a minimal impact on salaries
and benefits as overtime costs incurred were offset by unionized employee
salary savings. However, in the third quarter of 2004, overtime wages
exceeded unionized salary savings as Aliant stepped up to the challenge
of increased customer demand during a traditionally busy period. The magnitude
of security costs in the third quarter was similar to those incurred in
the second quarter, although costs per day decreased as there were a larger
number of days impacted by the labour disruption in the third quarter.
Generally, costs were higher than anticipated in the third quarter as
the labour disruption lasted over a longer period and continued over the
back-to-school period. In addition, the year-over-year
operating income declines reflected higher operating expenses from growth
in wireless and Internet services relating to commissions, subsidies,
cellular phone and accessories and to actions in support of increased
customer service levels, an increase in net benefit plans cost, normal
wage and annual salary adjustments and a higher amortization expense resulting
from a higher proportion of capital spending in broadband and wireless
assets in recent years with overall shorter depreciable lives. These increases
were partly offset by lower operating costs stemming from the Xwave restructuring
in 2003. |
| --- | --- |
| ● | Other
Bell Canada The Bell Canada segment incurred operating
losses of $898 million for the quarter and $649 million on a
year-to-date basis due to the $1,079 million of restructuring and
other items recorded in the quarter relating mainly to the departure program.
Accordingly, results were significantly down from operating income of
$163 million and $469 million, respectively, compared to the
same periods last year. The underlying operating
performance, prior to the restructuring charge, reflected an operating
income increase of 22.3% in the quarter and a decline of 2.4% on a year-to-date
basis over the same periods last year. This improvement stemmed from a
slowdown in the revenue rate of decline in our wholesale business and
from lower operating expenses as a result of the exiting of non-profitable
contracts within the wholesale market and our continued focus on productivity.
As expected, prior to the restructuring and other items, operating income
in the quarter and on a year-to-date basis reflected a marked improvement
compared to the 4.2% decrease experienced in the second quarter and the
31.5% decrease in the first quarter of this year, as the impact of the
exiting of these non-profitable contracts lessens during the year. Other BCE Operating income for the Other BCE segment increased
this quarter by 2.7% to $38 million reflecting growth in operating
income at Bell Globemedia, Telesat and CGI offsetting higher corporate
expenses. On a year-to-date basis, operating income declined by $25 million
to $177 million reflecting higher corporate expenses more than offsetting
the higher operating income at Bell Globemedia, Telesat and CGI. Both Bell Globemedia
and Telesat’s operating income grew reflecting revenue growth and
cost controls. CGI’s operating income grew reflecting its acquisition
of AMS. Corporate expenses increased, reflecting Sarbanes-Oxley compliance,
higher net benefit plans cost and other corporate activities. |

18 2004 Quarterly Report Bell Canada Enterprises

| OTHER ITEMS | Q3 2004 | | Q3 2003 | | %
change | | YTD 2004 | | YTD 2003 | | % change | |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| Operating
income | 25 | | 1,049 | | (97.6 | %) | 2,141 | | 3,108 | | (31.1 | %) |
| Other
income | 333 | | 1 | | n.m. | | 393 | | 48 | | 718.8 | % |
| Interest
expense | (253 | ) | (270 | ) | 6.3 | % | (758 | ) | (839 | ) | 9.7 | % |
| Pre-tax earnings from continuing
operations | 105 | | 780 | | (86.5 | %) | 1,776 | | 2,317 | | (23.3 | %) |
| Income
taxes | 44 | | (282 | ) | 115.6 | % | (511 | ) | (788 | ) | 35.2 | % |
| Non-controlling
interest | (47 | ) | (45 | ) | (4.4 | %) | (134 | ) | (144 | ) | 6.9 | % |
| Earnings from continuing operations | 102 | | 453 | | (77.5 | %) | 1,131 | | 1,385 | | (18.3 | %) |
| Discontinued
operations | (2 | ) | 11 | | (118.2 | %) | 28 | | 30 | | (6.7 | %) |
| Net
earnings | 100 | | 464 | | (78.4 | %) | 1,159 | | 1,415 | | (18.1 | %) |
| Dividends
on preferred shares | (18 | ) | (18 | ) | – | | (53 | ) | (50 | ) | (6.0 | %) |
| Premium
on redemption of preferred shares | – | | – | | n.m. | | – | | (7 | ) | 100.0 | % |
| Net earnings applicable to common shares | 82 | | 446 | | (81.6 | %) | 1,106 | | 1,358 | | (18.6 | %) |
| EPS | 0.09 | | 0.49 | | (81.6 | %) | 1.20 | | 1.49 | | (19.5 | %) |
| n.m.:
not meaningful | | | | | | | | | | | | |

EPS decreased by $0.40 to $0.09 in Q3 2004, compared to Q3 2003, which reflects the restructuring and other items of $0.78, partly offset by improvements in EBITDA of $0.04, net gains on investments of $0.35 and a decline in interest expense of $0.01. On a year-to-date basis, EPS decreased by $0.29 to $1.20 over the same period last year, which reflects the restructuring and other items, an unfavourable foreign exchange variance of $0.03 and a decline in operating gains from discontinued operations of $0.03, partly offset by improvements in EBITDA of $0.13, net gains on investments of $0.36 and a decline in interest expense of $0.06. OTHER INCOME Other income of $333 million in Q3 2004 and $393 million on a year-to-date basis in 2004 represent significant increases of $332 million and $345 million, respectively, compared to the same periods last year. In Q3 2004, we recognized: a gain of $108 million from the sale of Bell Canada’s remaining 3.24% interest in YPG General Partner Inc. for net cash proceeds of $123 million. Capital loss carryforwards were available to be utilized against the gain realized on this sale. a gain of $217 million realized from the sale of BCE Inc.’s 15.96% interest in MTS for net cash proceeds of $584 million. On August 1, 2004, as a result of a corporate reorganization, the MTS shares were transferred from Bell Canada to BCE Inc. The purpose of this reorganization was to ensure that capital loss carryforwards at BCE Inc. would be available to be utilized against the gain on the sale of the MTS shares. On a year-to-date basis, we also had higher miscellaneous income, partly offset by foreign exchange gains in 2003. In April 2003, we entered into forward contracts to hedge U.S.$200 million of long-term debt at Bell Canada that had not been hedged previously. This removed the foreign currency risk on the principal amount of that debt, which has since minimized the effect of foreign exchange. INTEREST EXPENSE Interest expense of $253 million in Q3 2004 and $758 million on a year-to-date basis in 2004 represent a 6.3% and a 9.7% decline, respectively, compared to the same periods last year. This resulted from $1.8 billion of debt repayments (net of issues) year-over-year. The decline in average debt levels was driven mainly by positive free cash flows. The average interest rate in Q3 2004 was 7.2% and on a year-to-date basis in 2004 was 7.1%, which is comparable to the same periods last year.

19 2004 Quarterly Report Bell Canada Enterprises

INCOME TAXES In Q3 2004, we had pre-tax earnings from continuing operations of $105 million and an income tax recovery of $44 million. The income tax recovery resulted from: $325 million of gains on the sale of MTS and YPG General Partner Inc. which were not tax effected since they were offset by available capital loss carryforwards for which the tax benefits had not been recorded previously restructuring charges of $45 million related to future lease costs for excess facilities, the tax benefits of which were not recorded t he reduction in the statutory income tax rate to 34.3% in 2004 from 35.4% in 2003 also contributed to a reduction in the effective tax rate in the quarter. On a year-to-date basis, income taxes decreased $277 million to $511 million compared to the same period last year. The decrease was mainly from lower pre-tax earnings (excluding the gains on sale of MTS, YPG General Partner Inc. and the non-deductible restructuring charges) and the reduction in the statutory income tax rate to 34.3% in 2004 from 35.4% in 2003. As a result of these items, the effective tax rate was 28.8% on a year-to-date basis in 2004 compared to 34.0% in the same period last year. NON-CONTROLLING INTEREST Non-controlling interest of $47 million in Q3 2004 represents a 4.4% increase compared to the same period last year. The increase was mainly due to the purchase of Bell West and higher earnings at Bell Globemedia, partly offset by lower earnings at Aliant as a result of the strike. On August 3, 2004, we acquired full ownership of Bell West by completing the purchase of MTS’s 40% interest in Bell West. On a year-to-date basis, non-controlling interest of $134 million represents a 6.9% decline compared to the same period last year. The decrease resulted from a higher net loss at Bell West mainly due to the loss on the GOA SuperNet contract recognized in Q2 2004 and lower earnings at Aliant as a result of the strike, partly offset by higher earnings at Bell Globemedia. DISCONTINUED OPERATIONS In May 2004, our board of directors approved the sale of our 63.9% interest in Emergis. In June 2004, BCE completed the sale of its interest in Emergis by way of a secondary public offering. In June 2004, Bell Canada paid $49 million to Emergis for the purchase of Emergis’ Security business and the early termination of the Bell Legacy Contract on June 30, 2004 rather than December 31, 2004, as well as the transfer of related intellectual property to Bell Canada. These transactions were recorded on a net basis. The net proceeds from the sale of Emergis were $285 million (net of $22 million of selling costs and $49 million consideration given to Emergis). The gain on the transaction was $60 million. The operating loss includes a future income tax asset impairment charge of $56 million ($36 million after non-controlling interest), which Emergis recorded before the sale as a result of the unwinding of tax loss utilization strategies between Emergis, 4122780 Canada Inc. (a wholly-owned subsidiary of Emergis) and Bell Canada.

20 2004 Quarterly Report Bell Canada Enterprises

| This
section tells you how we manage our cash and capital resources to carry
out our strategy and deliver financial results. It provides an analysis
of our financial condition, cash flows and liquidity on a consolidated
basis. | September 30, | | December 31, | |
| --- | --- | --- | --- | --- |
| | 2004 | | 2003 | |
| Debt
due within one year | 1,516 | | 1,519 | |
| Long-term
debt | 12,076 | | 12,381 | |
| Less:
Cash and cash equivalents | (1,386 | ) | (585 | ) |
| Total net debt | 12,206 | | 13,315 | |
| Non-controlling
interest | 2,904 | | 3,403 | |
| Total shareholders’
equity | 13,879 | | 13,573 | |
| Total capitalization | 28,989 | | 30,291 | |
| Net debt to capitalization | 42.1 | % | 44.0 | % |
| Outstanding share
data (in millions) | | | | |
| Common
shares at end of period | 924.9 | | 924.0 | |
| Stock
options at end of period | 29.5 | | 25.8 | |

Our net debt to capitalization ratio was 42.1% at the end of Q3 2004, an improvement from 44.0% at the end of Q4 2003. This reflected lower net debt and higher total shareholders’ equity, partly offset by lower non-controlling interest. Net debt was reduced by $1.1 billion to $12,206 million in the first nine months of 2004. This was driven mainly by $999 million of free cash flow in the first nine months of 2004 and approximately $1 billion of net cash proceeds from the disposition of our 15.96% interest in MTS ($584 million), our 63.9% interest in Emergis ($315 million) and our remaining 3.24% interest in YPG General Partner Inc. ($123 million). These were partly offset by $952 million invested in business acquisitions, which included Bell Canada’s acquisition of MTS’s 40% interest in Bell West for $646 million and our proportionate share of the cash paid for CGI’s acquisition of AMS ($168 million). Total shareholders’ equity increased $306 million to $13,879 million in the first nine months of 2004. This was mainly a result of $274 million of net earnings in excess of the dividends declared on common and preferred shares in the first nine months of 2004. Non-controlling interest declined by $499 million driven by Bell Canada’s purchase of MTS’s 40% interest in Bell West and the sale of our investment in Emergis.

21 2004 Quarterly Report Bell Canada Enterprises

| SUMMARY OF
CASH FLOWS | Q3 2004 | | Q3 2003 | | YTD 2004 | | YTD 2003 | |
| --- | --- | --- | --- | --- | --- | --- | --- | --- |
| Cash
from operating activities | 1,828 | | 1,818 | | 4,212 | | 4,370 | |
| Capital
expenditures | (811 | ) | (791 | ) | (2,318 | ) | (2,088 | ) |
| Other
investing activities | (2 | ) | 155 | | 133 | | 69 | |
| Preferred
dividends | (21 | ) | (14 | ) | (64 | ) | (39 | ) |
| Dividends
paid by subsidiaries to non-controlling interest | (44 | ) | (38 | ) | (133 | ) | (137 | ) |
| Free cash flow
from operations, before common dividends | 950 | | 1,130 | | 1,830 | | 2,175 | |
| Common
dividends | (277 | ) | (259 | ) | (831 | ) | (770 | ) |
| Free cash flow
from operations, after common dividends | 673 | | 871 | | 999 | | 1,405 | |
| Business
acquisitions | (646 | ) | (3 | ) | (952 | ) | (73 | ) |
| Business
dispositions | 4 | | 55 | | 20 | | 55 | |
| Change
in investments accounted for under the cost and equity methods | 695 | | 1 | | 693 | | 7 | |
| Net
issuance of equity instruments | 8 | | 5 | | 16 | | 167 | |
| Net
issuance (repayment) of debt instruments | 85 | | (179 | ) | (217 | ) | (301 | ) |
| Financing
activities of subsidiaries with third parties | (4 | ) | (15 | ) | (57 | ) | 39 | |
| Cash
provided by discontinued operations | 12 | | 30 | | 196 | | 17 | |
| Other | (18 | ) | 56 | | (34 | ) | (5 | ) |
| Net increase in
cash and cash equivalents | 809 | | 821 | | 664 | | 1,311 | |

CASH FROM OPERATING ACTIVITIES Cash from operating activities increased 0.6% or $10 million to $1,828 million in Q3 2004, compared to Q3 2003, with the receipt of a $75 million settlement payment from MTS being almost entirely offset by unfavourable changes in working capital. Working capital in Q3 2004 has been impacted by the new billing platform which resulted in anticipated delays in invoicing at quarter-end. Working capital is expected to return to a more normalized level by year end. In the first nine months of 2004, cash from operating activities decreased 3.6% or $158 million to $4,212 million, compared to 2003, as the settlement payment from MTS and improved operating performance were more than offset by less favourable changes in working capital. CAPITAL EXPENDITURES We continue to make investments to expand and update our networks and to meet customer demand for new services. Capital expenditures were $811 million in Q3 2004, or 17.0% of revenues. This was relatively stable compared with capital expenditures of $791 million, or 17.1% of revenues, for the same period last year. In the first nine months of 2004, capital expenditures were $2.3 billion, or 16.3% of revenues, up from $2.1 billion, or 15.0% of revenues, for the same period last year. The increase reflects a mix of higher spending in the growth businesses and reduced spending in the legacy areas. In addition, the increase in capital expenditures for the quarter reflected construction of Telesat’s new satellites, the main one being Anik F2. Declines in capital spending at Aliant resulted from the work disruption. Bell Canada’s consolidated capital intensity ratio increased to 17.5% in Q3 2004 (16.3% in the first nine months of 2004), compared to 17.0% in Q3 2003 (15.4% in the first nine months of 2003). Bell Canada’s consolidated capital expenditures accounted for over 85% of our consolidated capital expenditures in the first nine months of 2004 and over 90% of our consolidated capital expenditures in the first nine months of 2003.

22 2004 Quarterly Report Bell Canada Enterprises

OTHER INVESTING ACTIVITIES Cash from other investing activities of $133 million in the first nine months of 2004 included $179 million of insurance proceeds that Telesat received for a malfunction on the Anik F1 satellite. Cash from other investing activities of $155 million in Q3 2003 included: $83 million of proceeds from the settlement of dividend rate swaps. These swaps hedged dividend payments on some of BCE Inc.’s preferred shares. $62 million of insurance proceeds that Telesat and ExpressVu received for a malfunction on the Nimiq 2 satellite. COMMON DIVIDENDS We paid a dividend of $0.30 per common share in Q3 2004. This was the same as the dividend we paid in Q3 2003. We realized a cash benefit of $16 million in Q3 2003 ($55 million in the first nine months of 2003) because we issued treasury shares to fund BCE Inc.’s dividend reinvestment plan instead of buying shares on the open market. Effective Q1 2004, we started buying all of the shares needed for the dividend reinvestment plan on the open market to avoid dilution. This removed any further cash benefits related to issuing treasury shares. As a result, total dividends paid on common shares increased 6.9% or $18 million to $277 million in Q3 2004, compared to Q3 2003 and 7.9% or $61 million to $831 million in the first nine months of 2004, compared to 2003. BUSINESS ACQUISITIONS We invested $646 million in business acquisitions in Q3 2004. This consisted entirely of Bell Canada’s acquisition of MTS’s 40% interest in Bell West. Bell Canada now owns 100% of Bell West. Investments of $306 million in the first half of 2004 consisted of: business acquisitions at Bell Canada of $138 million, which included purchases in the Enterprise and SMB business units our 28.9% proportionate share of the cash paid for CGI’s acquisition of AMS of $168 million. We invested $73 million in business acquisitions during the first nine months of 2003. This consisted mainly of our proportionate share of the cash paid for CGI’s acquisition of Cognicase Inc. BUSINESS DISPOSITIONS We received $55 million for business dispositions during the first nine months of 2003 for Bell Canada’s sale of its 89.9% ownership interest in Certen Inc. (Certen). Bell Canada received $89 million in cash, which was reduced by $34 million of Certen’s cash and cash equivalents at the time of sale. CHANGE IN INVESTMENTS ACCOUNTED FOR UNDER THE COST AND EQUITY METHODS In Q3 2004, we sold our remaining 3.24% interest in YPG General Partner Inc. for net cash proceeds of $123 million and our 15.96% interest in MTS for net cash proceeds of $584 million. EQUITY INSTRUMENTS During the first nine months of 2003, BCE Inc. issued 20 million Series AC preferred shares for $510 million and redeemed 14 million Series U preferred shares for $357 million, which included a $7 million premium on redemption.

23 2004 Quarterly Report Bell Canada Enterprises

DEBT INSTRUMENTS We issued $85 million of debt (net of repayments) in Q3 2004. We made $217 million of debt repayments (net of issues) in the first nine months of 2004. The repayments were mainly at Bell Canada, BCE Inc. and Bell Globemedia. At Bell Canada, the repayments included the Series M-15 debentures for $500 million and the Series DU debentures for $126 million. In addition, in 2004, BCE Inc. redeemed all of its outstanding Series P retractable preferred shares for $351 million. The issuances were mainly at Bell Canada and Bell Globemedia. At Bell Canada, the issuances included the Series M-17 debentures for $450 million. At Bell Globemedia, the issuances included $300 million of senior notes. At September 30, 2004, BCE had approximately $1.4 billion of cash on hand. A portion of this cash will be used to repay $425 million of debt maturing at Bell Canada in Q4 2004, all of which was paid in October 2004. The remaining cash on hand will be used primarily for capital expenditures, dividend payments and the payment of contractual obligations in 2005. CASH RELATING TO DISCONTINUED OPERATIONS In the first nine months of 2004, cash provided by discontinued operations of $196 million consisted mainly of the net cash proceeds of $315 million from the sale of our investment in Emergis which were partly offset by the deconsolidation of Emergis’ cash on hand of $137 million at December 31, 2003.

| CREDIT RATINGS In June 2004 Standard
& Poor’s (S&P) upgraded BCE Inc.’s preferred shares
rating. The table below lists BCE Inc.’s and Bell Canada’s
key credit ratings at November 2, 2004. | | | | | | |
| --- | --- | --- | --- | --- | --- | --- |
| | | BCE Inc. | | | Bell Canada | |
| | S&P | DBRS | Moody’s | S&P | DBRS | Moody’s |
| Commercial
paper | A-1
(mid) / stable | R-1
(low) / stable | P-2
/ stable | A-1
(mid) / stable | R-1
(mid) / stable | P-2
/ stable |
| Extendable
commercial notes | A-1
(mid) / stable | R-1
(low) / stable | – | A-1
(mid) / stable | R-1
(mid) / stable | – |
| Long-term
debt | A-
/ stable | A
/ stable | Baa-1
/ stable | A
/ stable | A
(high) / stable | A-3
/ stable |
| Preferred
shares | P-2
(high) / stable | Pfd-2
/ stable | – | P-2
(high) / stable | Pfd-2
(high) / stable | – |

LIQUIDITY Our ability to generate cash in the short term and in the long term, when needed, and to provide for planned growth and to fund development activities, depends on our sources of liquidity and on our cash requirements. Our sources of liquidity and cash requirements remain substantially unchanged from those described in the BCE 2003 MD&A, except for those listed below. Commitment under deferral account The deferral account is a new mechanism resulting from the CRTC's price cap decision of May 2002, which will be used to fund initiatives such as service improvements, reduced rates and/or rebates. We estimate our commitment relating to the deferral account to be approximately $195 million at September 30, 2004. Employee departure program Under both phases of the program, employees are entitled to receive a special cash allowance. This will result in total cash payments of approximately $314 million which we expect to pay in the coming months. The program will reduce Bell Canada’s pension plan surpluses, which may, subject to plan returns and the next periodic actuarial valuation, affect future funding requirements. Provision for contract loss In 2001, we entered into a contract with the Government of Alberta to build a next generation network to bring high-speed internet and broadband capabilities to rural communities in Alberta. This contract

24 2004 Quarterly Report Bell Canada Enterprises

is accounted for using the percentage of completion method. During the second quarter of 2004, as part of our regular update of the estimated costs to complete construction of the network, potential cost overruns were identified. Construction is to be complete in late 2004. The costs of this last phase of construction are higher than previously estimated, due to changes necessitated in construction methods to connect individual government buildings to the network and higher average costs of construction. We recorded a provision of $110 million for this contract in the second quarter of 2004. Our estimated costs to complete are unchanged at September 30, 2004. Agreement to purchase Canadian operations of 360networks Corporation In May 2004, Bell Canada announced an agreement to purchase the Canadian operations of 360networks Corporation for $275 million in cash. The purchase includes the shares of 360networks’ subsidiary GT Group Telecom Services Corporation, and certain related U.S. interconnect assets. Bell Canada plans to retain all of 360networks’ business, facilities and customer base in western Canada, and has an agreement to sell the retail customer operations and certain assets in central and eastern Canada to Call-Net Enterprises Inc. while continuing to provide network and other services to the central and eastern customer base for a share of future revenues. All regulatory approvals have been obtained and we expect to close the transaction in November 2004, subject to usual closing conditions. RECENT DEVELOPMENTS IN LEGAL PROCEEDINGS This section provides a description of new legal proceedings involving BCE and of recent developments in certain of the legal proceedings involving BCE described in the BCE 2003 AIF as subsequently updated in BCE Inc.’s 2004 First Quarter MD&A dated May 4, 2004 (BCE 2004 First Quarter MD&A) and BCE Inc.’s 2004 Second Quarter MD&A dated August 3, 2004 (BCE 2004 Second Quarter MD&A). LAWSUITS RELATED TO BELL CANADA Potential Class Action Concerning Wireless Access Charges On August 9, 2004, a statement of claim was filed under the Class Actions Act (Saskatchewan) in the Court of Queen’s Bench, Judicial Centre of Regina, Saskatchewan by certain alleged customers or former customers of Bell Canada and other Canadian telecommunications providers (“Canadian Telcos”) for wireless and cellular services. The lawsuit has not been certified as a class action and it is too early to determine whether it will qualify for certification. The statement of claim alleges breach of contract and duty to inform, breach of warranties and covenants, deceit, misrepresentation, negligence, wrongful acts and omissions, collusion, and breach of statutory duty or obligation under the Competition Act (Canada), in connection with certain “system access fees” and “system licensing charges” invoiced by Bell Canada and the other Canadian Telcos to their customers. The plaintiffs seek unspecified damages and punitive damages from Bell Canada and the other Canadian Telcos. While no one can predict the outcome of any legal proceeding, based on information currently available, we believe that we have strong defences and we intend to vigorously defend our position. Potential class Action concerning Bell Mobility Billing system On October 28, 2004, a motion seeking certification to proceed as a class action against Bell Mobility, a wholly-owned subsidiary of Bell Canada, was filed with the Québec Superior Court. The lawsuit has not been certified to proceed as a class action and it is too early to detemrine whether it will qualify for certifcation. The lawsuit was filed on behalf of all physical persons residing in the Province of Québec, who entered into a contract with Bell Mobility for the provision of wireless telephone services, and alleges that such persons have unjustly ihncurred expenses as a result of billing errors made by Bell Mobility or as a result of Bell Mobility wrongfully disconnecting service to such customers. In addition to the reimbursement of such expenses, the class action would, if authorized, also seek payment of damages by Bell Mobility in the amount of $100 per class member for inconvenience as well as punitive damages in the amount of $200 per class member.

25 2004 Quarterly Report Bell Canada Enterprises

While no one can predict the outcome of any legal proceeding, based on information currently available, we believe that we have strong defences and we intend to vigorously defend our position. Bell Distribution Inc. lawsuit On September 1, 2004, Bell Distribution Inc.’s franchisees and Bell Canada entered into an agreement for the settlement of this action. LAWSUITS RELATED TO TELEGLOBE INC. (TELEGLOBE) Teleglobe lending syndicate lawsuit As indicated in the BCE 2003 AIF, a lawsuit was filed in the Ontario Superior Court of Justice on July 12, 2002 against BCE Inc. by certain of the members of the Teleglobe and Teleglobe Holdings (U.S.) Corporation lending syndicate. On November 2, 2004, two of the plaintiffs, Canadian Imperial Bank of Commerce and Canadian Imperial Bank of Commerce, N.Y. Agency, which had advanced approximately U.S.$104 million to Teleglobe and Teleglobe Holdings (U.S.) Corporation, filed a notice of discontinuance with the Court and are therefore no longer plaintiffs in this action. The damages sought by the remaining plaintiffs now amount to approximately U.S.$1.09 billion (down from approximately U.S.$1.19 billion), plus interest and costs, representing approximately 87% (down from approximately 95%) of the US$1.25 billion that the members of that lending syndicate advanced to Teleglobe and Teleglobe Holdings (U.S.) Corporation. Teleglobe unsecured creditors lawsuit As indicated in the BCE 2004 Second Quarter MD&A, a lawsuit was filed in the United States Bankruptcy Court for the District of Delaware against BCE Inc. and ten former directors and officers of Teleglobe and certain of its subsidiaries on May 26, 2004. The plaintiffs are comprised of Teleglobe Communications Corporation, certain of its affiliated debtors and debtors in possession, and the Official Committee of Unsecured Creditors of these debtors. The lawsuit alleges breach of an alleged funding commitment of BCE Inc. towards the debtors, promissory estoppel, misrepresentation by BCE Inc., and breach and aiding and abetting breaches of fiduciary duty by the defendants. By order dated September 8, 2004, the automatic reference of this action to the Bankruptcy Court was withdrawn and the action is now pending in the District Court for the District of Delaware. On September 15, 2004, BCE Inc. and the other defendants filed a motion to dismiss the action for lack of standing and for failure to state a claim. BCE Inc. and the other defendants also contend that plaintiffs should not be allowed to transform a contract claim into tort claims. On October 14, 2004, the Court denied defendants’ motion to stay discovery pending disposition of defendants’ motion to dismiss. LAWSUITS RELATED TO BELL CANADA INTERNATIONAL INC. (BCI) BCI common shareholders lawsuits As indicated in the BCE 2003 AIF, an appeal to the Ontario Court of Appeal was filed in March 2004 by the plaintiffs in two lawsuits seeking damages from BCE Inc. and BCI in connection with the issue of BCI common shares under BCI’s recapitalization plan and the implementation of BCI’s plan of arrangement. These lawsuits had been dismissed on January 5, 2004 by the Ontario Superior Court of Justice as failing to disclose a reasonable cause of action against BCE Inc. or BCI, and abused the process of the court, and ordering that neither of the two plaintiffs may amend his statement of claim to bring these lawsuits before the court again. As indicated in the BCE 2004 Second Quarter MD&A, the appeal was heard on July 12, 2004, and on July 23, 2004 the Ontario Court of Appeal issued its decision and reasons, upholding the lower court’s decision and dismissing the lawsuits as failing to disclose a reasonable cause of action. On September 29, 2004, the plaintiffs filed an application with the Supreme Court of Canada seeking leave to appeal the decision of the Court of Appeal for Ontario, and indicated, in their application, that if the appeal court decision is reversed, they intend to proceed with only one of the actions. The defendants have filed joint responding materials.

26 2004 Quarterly Report Bell Canada Enterprises

LAWSUITS RELATED TO BELL GLOBEMEDIA As indicated in the BCE 2003 AIF, on February 5, 2001, Bell Globemedia Publishing Inc., a subsidiary of Bell Globemedia, was added as a defendant to a $100 million class action lawsuit relating to copyright infringement. The claim is that the defendants (which include The Globe and Mail newspaper and magazines it publishes) do not have the right to archive and publish certain freelanced and employee material from the newspaper or magazines in any format other than print. On October 3, 2001, the Ontario Superior Court of Justice rejected the plaintiff’s motion for partial summary judgment (including the rejection of a requested injunction at this stage) on certain proposed common issues. The plaintiff appealed this decision, and the defendants cross-appealed some issues. The Ontario Court of Appeal provided its majority decision on October 6, 2004, and affirmed the initial refusal of summary judgement. Both the plaintiff and the defendants have 60 days from October 6, 2004 to apply for leave to appeal to the Supreme Court of Canada. Risks That Could Affect Our Business A risk is the possibility that an event might happen in the future that could have a negative effect on the financial condition, results of operations, cash flows or business of one or more BCE group companies. Part of managing our business is to understand what these potential risks could be and to minimize them where we can. Because no one can predict whether an event will happen or its consequences, the actual effect of any event on our business could be materially different from what we currently anticipate. In addition, the risks described below and elsewhere in this MD&A do not include all possible risks, and there may be other risks that we are currently not aware of. In the BCE 2004 First Quarter MD&A, we provided a detailed review of the risks that could affect our financial condition, results of operations, cash flows or business and that could cause actual results to differ materially from those expressed in our forward-looking statements. This detailed description of risks was updated in the BCE 2004 Second Quarter MD&A and is further updated in this MD&A. These risks include risks associated with: our ability to complete within our targeted timeframe, and the impact on our financial results of, the migration of our multiple service-specific networks to a single IP-based network; our ability to implement our strategies and plans in order to produce the expected benefits and growth prospects, including meeting targets for revenue, earnings per share, free cash flow and capital intensity; general economic and market conditions and the level of consumer confidence and spending, and the demand for, and prices of, our products and services; the intensity of competitive activity from both traditional and new competitors, Canadian or foreign, including cross-platform competition, which is increasing following the introduction of new technologies such as Voice over Internet Protocol (VoIP) which have reduced barriers to entry that existed in the industry, and its resulting impact on the ability to retain existing, and attract new, customers, and on pricing strategies and financial results; the ability to improve productivity and contain capital intensity while maintaining quality of services; the ability to anticipate, and respond to, changes in technology, industry standards and client needs and migrate to and deploy new technologies, including VoIP, and offer new products and services rapidly and achieve market acceptance thereof; the availability and cost of capital required to implement our financing plans and fund capital and other expenditures; our ability to retain major customers;

27 2004 Quarterly Report Bell Canada Enterprises

our ability to find suitable companies to acquire or to partner with; the impact of pending or future litigation and of adverse changes in laws or regulations, including tax laws, or in how they are interpreted, or of adverse regulatory initiatives or proceedings, including decisions by the CRTC affecting our ability to compete effectively, including, more specifically, decisions concerning the regulation of VoIP services; the risk of litigation should BCE stop funding a subsidiary or change the nature of its investment, or dispose of all or part of its interest, in a subsidiary; the risk of increased pension plan contributions resulting from Bell Canada’s recent early retirement program and from the risk of low returns on pension plan assets; our ability to manage effectively labour relations, negotiate satisfactory labour agreements, including new agreements replacing expired labour agreements, while avoiding work stoppages, and maintain service to customers and minimize disruptions during strikes and other work stoppages; events affecting the functionality of our networks or of the networks of other telecommunications carriers on which we rely to provide our services; stock market volatility; our ability to increase the number of customers who buy multiple products; our ability to implement the significant changes in processes, in how we approach our markets, and in products and services, required by our strategic direction; Canadian government action in respect of the foreign ownership restrictions that apply to telecommunications carriers and to broadcasting distribution undertakings; the risk that the amount of the expected annual savings relating to Bell Canada’s recent employee voluntary departure program will be lower than anticipated due to various factors including the incurrence of outsourcing, replacement and other costs; and launch and in-orbit risks, including the ability to obtain appropriate insurance coverage at favourable rates, concerning Telesat’s satellites, certain of which are used by Bell ExpressVu to provide services. For a more complete description of the risks that could affect our business, please see the BCE 2004 First Quarter MD&A, as updated in the BCE 2004 Second Quarter MD&A and this MD&A, filed by BCE Inc. with the Canadian securities commissions (available on BCE Inc.’s site at www.bce.ca and on SEDAR at www.sedar.com) and with the U.S. Securities and Exchange Commission (SEC) under Form 6-K (available on EDGAR at www.sec.gov). Please refer to the BCE 2003 AIF filed by BCE Inc. with the Canadian securities commissions and with the SEC under Form 40-F for a detailed description of: the principal legal proceedings involving BCE; certain regulatory initiatives and proceedings concerning the Bell Canada companies. Please see Recent Developments in Legal Proceedings in this MD&A, in the BCE 2004 First Quarter MD&A and in the BCE 2004 Second Quarter MD&A for a description of new legal proceedings involving us and of recent developments, since the BCE 2003 AIF, in the principal legal proceedings involving us. In addition, please see Updates to the Description of Risks below, Updates to the Description of Risks in the BCE 2004 Second Quarter MD&A and Risks that could affect certain BCE group companies – Bell Canada companies – Changes to wireline regulations in the BCE 2004 First Quarter MD&A, for a description of recent developments, since the BCE 2003 AIF, in the principal regulatory initiatives and proceedings concerning the Bell Canada companies. UPDATES TO THE DESCRIPTION OF RISKS The following are updates to the description of risks contained in the section entitled Risks That Could Affect Our Business set out on pages 18 to 31 of the BCE 2004 First Quarter MD&A as updated in the BCE 2004 Second Quarter MD&A. For ease of reference, the updates to the description of risks below

28 2004 Quarterly Report Bell Canada Enterprises

have been presented under the same headings and in the same order contained in the section entitled Risks That Could Affect Our Business set out in the BCE 2004 First Quarter MD&A. RISKS THAT COULD AFFECT ALL BCE GROUP COMPANIES RENEGOTIATING LABOUR AGREEMENTS A new collective agreement between Bell Canada and the CEP, representing approximately 7,100 craft and services employees, was signed on August 19, 2004 and will expire in November 2007. As well, a collective agreement between Aliant Telecom Inc. (a wholly-owned subsidiary of Aliant) and the CATU, representing approximately 4,300 employees, was signed on September 16, 2004 and will expire on December 31, 2007. Accordingly, the actual or potential adverse effects of the events preceding the execution of these collective agreements have now ceased to exist. RISKS THAT COULD AFFECT CERTAIN BCE GROUP COMPANIES BELL CANADA COMPANIES Contract with the Government of Alberta In 2001, we entered into a contract with the Government of Alberta to build a next generation network to bring high-speed internet and broadband capabilities to rural communities in Alberta. Construction is to be compelte in late 2004. However, the final costs to complete the network will not be known until completion of the network and final acceptance by the Government of Alberta which is expected to occur during 2005. Changes to Wireline Regulations Decision on Incumbent Affiliates On September 23, 2003, the CRTC issued a decision that requires Bell Canada and its carrier affiliates to include a detailed description of the bundled services they provide to customers when they file tariffs with the CRTC. Bell Canada’s appeal of this decision to the Federal Court of Canada was dismissed on September 14, 2004. As a result, Bell Canada is now re-filing tariffs for those contracts with bundles that have not yet expired in order to provide more detailed descriptions of the bundled services. Application seeking consistent regulation On November 6, 2003, Bell Canada filed an application requesting that the CRTC start a public hearing to review how similar services offered by cable companies and telephone companies are regulated. On April 7, 2004, the CRTC invited comments on its preliminary views regarding the regulation of VoIP services and invited interested parties to participate in a public consultation relating to the regulatory framework for VoIP. Bell Canada provided its comments to the CRTC on June 18, 2004. Between September 21 and September 23, 2004, the CRTC held the public consultation relating to the regulatory framework for VoIP. Bell Canada filed reply comments on October 13, 2004. A decision is expected in the first quarter of 2005. There is a risk that the CRTC might decide to regulate VoIP services provided by the Bell Canada companies and other Incumbent Local Exchange Carriers but not by certain other competitors. Accordingly, these proceedings could determine the rules for competition with other service providers, could affect the flexibility of the Bell Canada companies when competing in the future and could result in delays for launching new services as well as restrictions on our marketing flexibility (such as pricing rules, bundling restrictions, etc.) for such services. Licences for Broadcasting As indicated in the BCE 2004 Second Quarter MD&A, Bell Canada has applied to the CRTC for licences to operate broadcasting distribution undertakings, using its wireline facilities, to serve large cities in

29 2004 Quarterly Report Bell Canada Enterprises

| Southern
Ontario and Québec. The CRTC held a public hearing, as required
under the Broadcasting Act, in August 2004. Cable operators were
seeking delays to the licensing and other conditions that would inhibit
Bell Canada’s ability to compete with them. A decision is expected
in November 2004. TELESAT Anik F2 As indicated in the BCE 2004 Second Quarter
MD&A, on July 17, 2004, Telesat launched the Anik F2 satellite.
It successfully entered commercial service, following commissioning and
testing, in October 2004. Accordingly, the risks described in the
BCE 2004 Second Quarter MD&A relating to Anik F2’s
construction, launch and commissioning no longer apply. Our
Accounting Policies We have prepared our
consolidated financial statements according to Canadian GAAP. See Note
1 to the consolidated financial statements for more information about
the accounting policies we used to prepare our financial statements. The key estimates and
assumptions that management has made and their impact on the amounts reported
in the financial statements and notes remain substantially unchanged from
those described in the BCE 2003 MD&A. We have not changed
our accounting policies other than those described in the BCE 2003
MD&A and in Note 1 to the consolidated financial statements. Supplementary
Financial Information The table below shows selected
consolidated financial data for the eight most recently completed quarters. | | | | | | | | | | | | |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| | | | 2004 | | | | | 2003 | | | 2002 | |
| | Q3 | | Q2 | Q1 | | Q4 | | Q3 | Q2 | Q1 | Q4 | |
| Operating
revenues | 4,781 | | 4,782 | 4,641 | | 4,818 | | 4,627 | 4,673 | 4,619 | 4,974 | |
| Operating
income | 25 | | 1,105 | 1,011 | | 1,013 | | 1,049 | 1,078 | 981 | 649 | |
| Earnings
from continuing operations | 102 | | 544 | 485 | | 486 | | 453 | 466 | 466 | 790 | |
| Discontinued
operations | (2 | ) | 27 | 3 | | (86 | ) | 11 | 12 | 7 | 922 | |
| Net
earnings | 100 | | 571 | 488 | | 400 | | 464 | 478 | 473 | 1,712 | |
| Net
earnings applicable to common shares | 82 | | 554 | 470 | | 386 | | 446 | 461 | 451 | 1,696 | |
| Included in net earnings: | | | | | | | | | | | | |
| Net
gains on investments | | | | | | | | | | | | |
| Continuing
operations | 325 | | – | – | | 84 | | – | – | – | 1,230 | |
| Discontinued operations | (2 | ) | 31 | 7 | | (94 | ) | 8 | – | – | 911 | |
| Restructuring
and other items | (725 | ) | 16 | (1 | ) | (9 | ) | 6 | – | – | (251 | ) |
| Impairment
charge | – | | – | – | | – | | – | – | – | (527 | ) |
| Net earnings per common share: | | | | | | | | | | | | |
| Continuing operations –
basic | 0.09 | | 0.57 | 0.51 | | 0.50 | | 0.48 | 0.49 | 0.49 | 0.87 | |
| Continuing operations –
diluted | 0.08 | | 0.57 | 0.51 | | 0.50 | | 0.47 | 0.49 | 0.49 | 0.86 | |
| Net
earnings – basic | 0.09 | | 0.60 | 0.51 | | 0.41 | | 0.49 | 0.50 | 0.50 | 1.88 | |
| Net
earnings – diluted | 0.08 | | 0.60 | 0.51 | | 0.41 | | 0.48 | 0.50 | 0.50 | 1.85 | |
| Average
number of common shares outstanding (millions) | 924.6 | | 924.3 | 924.1 | | 923.4 | | 921.5 | 919.3 | 917.1 | 909.1 | |

30 2004 Quarterly Report Bell Canada Enterprises

| Consolidated
Financial Statements Consolidated Statements of Operations | | | | | | | | |
| --- | --- | --- | --- | --- | --- | --- | --- | --- |
| For the period ended September 30 | Three
months | | | | Nine
months | | | |
| (in
$ millions, except share amounts) (unaudited) | 2004 | | 2003 | | 2004 | | 2003 | |
| Operating revenues | 4,781 | | 4,627 | | 14,204 | | 13,919 | |
| Operating
expenses | (2,845 | ) | (2,732 | ) | (8,471 | ) | (8,356 | ) |
| Amortization
expense | (769 | ) | (801 | ) | (2,305 | ) | (2,325 | ) |
| Net
benefit plans cost (Note 4) | (61 | ) | (44 | ) | (189 | ) | (129 | ) |
| Restructuring
and other items (Note 5) | (1,081 | ) | (1 | ) | (1,098 | ) | (1 | ) |
| Total
operating expenses | (4,756 | ) | (3,578 | ) | (12,063 | ) | (10,811 | ) |
| Operating income | 25 | | 1,049 | | 2,141 | | 3,108 | |
| Other
income (Note 6) | 333 | | 1 | | 393 | | 48 | |
| Interest
expense | (253 | ) | (270 | ) | (758 | ) | (839 | ) |
| Pre-tax earnings from
continuing operations | 105 | | 780 | | 1,776 | | 2,317 | |
| Income
taxes | 44 | | (282 | ) | (511 | ) | (788 | ) |
| Non-controlling
interest | (47 | ) | (45 | ) | (134 | ) | (144 | ) |
| Earnings from continuing
operations | 102 | | 453 | | 1,131 | | 1,385 | |
| Discontinued
operations (Note 7) | (2 | ) | 11 | | 28 | | 30 | |
| Net earnings | 100 | | 464 | | 1,159 | | 1,415 | |
| Dividends
on preferred shares | (18 | ) | (18 | ) | (53 | ) | (50 | ) |
| Premium
on redemption of preferred shares | – | | – | | – | | (7 | ) |
| Net earnings applicable
to common shares | 82 | | 446 | | 1,106 | | 1,358 | |
| Net earnings per common
share – basic | | | | | | | | |
| Continuing
operations | 0.09 | | 0.48 | | 1.17 | | 1.46 | |
| Discontinued
operations | – | | 0.01 | | 0.03 | | 0.03 | |
| Net
earnings | 0.09 | | 0.49 | | 1.20 | | 1.49 | |
| Net earnings per common
share – diluted | | | | | | | | |
| Continuing
operations | 0.08 | | 0.47 | | 1.16 | | 1.45 | |
| Discontinued
operations | – | | 0.01 | | 0.03 | | 0.03 | |
| Net
earnings | 0.08 | | 0.48 | | 1.19 | | 1.48 | |
| Dividends per common share | 0.30 | | 0.30 | | 0.90 | | 0.90 | |
| Average
number of common shares outstanding – basic (millions) | 924.6 | | 921.5 | | 924.4 | | 919.3 | |

| Consolidated
Statements of Deficit | | | | | | | | |
| --- | --- | --- | --- | --- | --- | --- | --- | --- |
| For
the period ended September 30 | Three
months | | | | Nine
months | | | |
| (in
$ millions) (unaudited) | 2004 | | 2003 | | 2004 | | 2003 | |
| Balance
at beginning of period, as previously reported | (5,368 | ) | (6,079 | ) | (5,830 | ) | (6,435 | ) |
| Accounting
policy change for asset retirement obligations (Note 1) | – | | (7 | ) | (7 | ) | (7 | ) |
| Balance
at beginning of period, as restated | (5,368 | ) | (6,086 | ) | (5,837 | ) | (6,442 | ) |
| Consolidation of variable
interest entity | – | | (25 | ) | – | | (25 | ) |
| Net earnings | 100 | | 464 | | 1,159 | | 1,415 | |
| Dividends declared on common
shares | (277 | ) | (277 | ) | (832 | ) | (828 | ) |
| Dividends declared on preferred
shares | (18 | ) | (18 | ) | (53 | ) | (50 | ) |
| Premium on redemption of preferred
shares | – | | – | | – | | (7 | ) |
| Other | – | | (2 | ) | – | | (7 | ) |
| Balance at end of period | (5,563 | ) | (5,944 | ) | (5,563 | ) | (5,944 | ) |

31 2004 Quarterly Report Bell Canada Enterprises

| Consolidated
Balance Sheets | September 30 | | December
31 | |
| --- | --- | --- | --- | --- |
| (in
$ millions) (unaudited) | 2004 | | 2003 | |
| ASSETS | | | | |
| Current
assets | | | | |
| Cash
and cash equivalents | 1,386 | | 585 | |
| Accounts
receivable | 2,491 | | 2,061 | |
| Other
current assets | 892 | | 739 | |
| Current
assets of discontinued operations | – | | 280 | |
| Total
current assets | 4,769 | | 3,665 | |
| Capital
assets | 21,111 | | 21,114 | |
| Other
long-term assets | 2,494 | | 3,459 | |
| Indefinite-life
intangible assets | 2,910 | | 2,910 | |
| Goodwill | 8,368 | | 7,761 | |
| Non-current
assets of discontinued operations | 50 | | 511 | |
| Total
assets | 39,702 | | 39,420 | |
| LIABILITIES | | | | |
| Current
liabilities | | | | |
| Accounts
payable and accrued liabilities | 4,537 | | 3,534 | |
| Debt
due within one year | 1,516 | | 1,519 | |
| Current
liabilities of discontinued operations | – | | 285 | |
| Total
current liabilities | 6,053 | | 5,338 | |
| Long-term
debt | 12,076 | | 12,381 | |
| Other
long-term liabilities | 4,790 | | 4,705 | |
| Non-current
liabilities of discontinued operations | – | | 20 | |
| Total
liabilities | 22,919 | | 22,444 | |
| Non-controlling
interest | 2,904 | | 3,403 | |
| SHAREHOLDERS’
EQUITY | | | | |
| Preferred
shares | 1,670 | | 1,670 | |
| Common
shareholders’ equity | | | | |
| Common
shares | 16,765 | | 16,749 | |
| Contributed
surplus | 1,052 | | 1,037 | |
| Deficit | (5,563 | ) | (5,837 | ) |
| Currency
translation adjustment | (45 | ) | (46 | ) |
| Total
common shareholders’ equity | 12,209 | | 11,903 | |
| Total
shareholders’ equity | 13,879 | | 13,573 | |
| Total
liabilities and shareholders’ equity | 39,702 | | 39,420 | |

32 2004 Quarterly Report Bell Canada Enterprises

| Consolidated
Statements of Cash Flows | | | | | | | | |
| --- | --- | --- | --- | --- | --- | --- | --- | --- |
| For
the period ended September 30 | Three
months | | | | Nine
months | | | |
| (in
$ millions) (unaudited) | 2004 | | 2003 | | 2004 | | 2003 | |
| Cash flows from
operating activities | | | | | | | | |
| Earnings
from continuing operations | 102 | | 453 | | 1,131 | | 1,385 | |
| Adjustments
to reconcile earnings from continuing operations to cash flows from
operating activities: | | | | | | | | |
| Amortization
expense | 769 | | 801 | | 2,305 | | 2,325 | |
| Net
benefit plans cost | 61 | | 44 | | 189 | | 129 | |
| Restructuring
and other items (non-cash portion) | 1,149 | | (4 | ) | 1,164 | | (4 | ) |
| Net
gains on investments | (325 | ) | – | | (331 | ) | – | |
| Future
income taxes | (183 | ) | 134 | | (96 | ) | 211 | |
| Non-controlling
interest | 47 | | 45 | | 134 | | 144 | |
| Contributions
to employee pension plans | (32 | ) | (46 | ) | (88 | ) | (73 | ) |
| Other
employee future benefit plan payments | (13 | ) | (22 | ) | (59 | ) | (64 | ) |
| Other | (27 | ) | 26 | | (3 | ) | (10 | ) |
| Changes
in non-cash working capital | 280 | | 387 | | (134 | ) | 327 | |
| Cash from operating
activities | 1,828 | | 1,818 | | 4,212 | | 4,370 | |
| Cash flows from
investing activities | | | | | | | | |
| Capital
expenditures | (811 | ) | (791 | ) | (2,318 | ) | (2,088 | ) |
| Business
acquisitions | (646 | ) | (3 | ) | (952 | ) | (73 | ) |
| Business
dispositions | 4 | | 55 | | 20 | | 55 | |
| Decrease
in investments accounted for under the cost and equity methods | 695 | | 1 | | 693 | | 7 | |
| Other | (2 | ) | 155 | | 133 | | 69 | |
| Cash used in investing
activities | (760 | ) | (583 | ) | (2,424 | ) | (2,030 | ) |
| Cash flows from
financing activities | | | | | | | | |
| Increase
(decrease) in notes payable and bank advances | 173 | | (73 | ) | 123 | | (242 | ) |
| Issue
of long-term debt | 10 | | 17 | | 1,410 | | 1,881 | |
| Repayment
of long-term debt | (98 | ) | (123 | ) | (1,750 | ) | (1,940 | ) |
| Issue
of common shares | 8 | | 5 | | 16 | | 14 | |
| Issue
of preferred shares | – | | – | | – | | 510 | |
| Redemption
of preferred shares | – | | – | | – | | (357 | ) |
| Issue
of equity securities by subsidiaries to non-controlling interest | – | | 24 | | 7 | | 113 | |
| Redemption
of equity securities by subsidiaries from non-controlling interest | (4 | ) | (39 | ) | (64 | ) | (74 | ) |
| Cash
dividends paid on common shares | (277 | ) | (259 | ) | (831 | ) | (770 | ) |
| Cash
dividends paid on preferred shares | (21 | ) | (14 | ) | (64 | ) | (39 | ) |
| Cash
dividends paid by subsidiaries to non-controlling interest | (44 | ) | (38 | ) | (133 | ) | (137 | ) |
| Other | (18 | ) | 56 | | (34 | ) | (5 | ) |
| Cash used in financing
activities | (271 | ) | (444 | ) | (1,320 | ) | (1,046 | ) |
| Cash
provided by continuing operations | 797 | | 791 | | 468 | | 1,294 | |
| Cash
provided by discontinued operations | 12 | | 30 | | 196 | | 17 | |
| Net
increase in cash and cash equivalents | 809 | | 821 | | 664 | | 1,311 | |
| Cash
and cash equivalents at beginning of period | 577 | | 796 | | 722 | | 306 | |
| Cash and cash equivalents
at end of period | 1,386 | | 1,617 | | 1,386 | | 1,617 | |
| Consists
of: | | | | | | | | |
| Cash
and cash equivalents of continuing operations | 1,386 | | 1,476 | | 1,386 | | 1,476 | |
| Cash
and cash equivalents of discontinued operations | – | | 141 | | – | | 141 | |
| Total | 1,386 | | 1,617 | | 1,386 | | 1,617 | |

33 2004 Quarterly Report Bell Canada Enterprises

The interim consolidated financial statements should be read in conjunction with BCE Inc.’s annual consolidated financial statements for the year ended December 31, 2003, on pages 64 to 101 of BCE Inc.’s 2003 annual report. These notes are unaudited. All amounts are in millions of Canadian dollars, except where noted. We , us , our and BCE mean BCE Inc., its subsidiaries and joint ventures. Notes to Consolidated Financial Statements NOTE 1. SIGNIFICANT ACCOUNTING POLICIES We have prepared the consolidated financial statements in accordance with Canadian generally accepted accounting principles (GAAP) using the same basis of presentation and accounting policies as outlined in Note 1 to the annual consolidated financial statements for the year ended December 31, 2003, except as noted below. Comparative figures We have reclassified some of the figures for the comparative periods in the consolidated financial statements to make them consistent with the current period’s presentation. We have restated financial information for previous periods to reflect: the adoption of section 3110 of the CICA Handbook, Asset retirement obligations , effective January 2004, as described below the change in classification to discontinued operations for BCE Emergis Inc. (Emergis) and other minor business dispositions. Change in accounting policy Effective January 1, 2004, we retroactively adopted section 3110 of the CICA Handbook, Asset retirement obligations . The impact on our consolidated statements of operations for the three months and nine months ended September 30, 2004 and the comparative periods was negligible. At December 31, 2003 and 2002, this resulted in: an increase of $6 million in capital assets an increase of $17 million in other long-term liabilities a decrease of $4 million in future income tax liabilities an increase of $7 million in the deficit. Stock-based compensation plans Starting in 2004, we made a number of prospective changes to the key features in our stock-based compensation plans, which included transferring approximately 50% of the value of the long-term incentive plan, under which stock options are granted, into a new mid-term plan which uses restricted share units (RSUs). We record compensation expense for each RSU granted equal to the market value of a BCE Inc. common share at the date of grant prorated over the vesting period. The compensation expense is adjusted for future changes in the market value of BCE Inc. common shares until the vesting date. The cumulative effect of the change in value is recognized in the period of the change. Subject to compliance with individual minimum share ownership requirements set out in BCE’s policies, vested RSUs will be paid in BCE Inc. common shares purchased on the open market or in cash at the option of the holder. NOTE 2. SEGMENTED INFORMATION Starting in the first quarter of 2004, we report our results of operations under five segments: Consumer , Business , Aliant , Other Bell Canada and Other BCE . Our reporting structure reflects how we manage our business and how we classify our operations for planning and measuring performance. The Consumer segment provides local telephone, long distance, wireless, Internet access, video and other services to Bell Canada’s residential customers mainly in Ontario and Québec. Wireless services are also offered in Western Canada and video services are provided nationwide. The Business segment provides local telephone, long distance, wireless, data, including Internet access, and other services to Bell Canada’s small and medium-sized businesses (SMB) and large enterprise customers in Ontario and Québec, as well as business customers in Western Canada through Bell West Inc. (Bell West). The Aliant segment provides local telephone, long distance, wireless, data, including Internet access, and other services to residential and business customers in Atlantic Canada and represents the operations of our subsidiary, Aliant Inc. (Aliant). The Other Bell Canada segment includes Bell Canada’s wholesale business, and the financial results of Télébec Limited Partnership (Télébec), NorthernTel Limited Partnership (NorthernTel) and Northwestel Inc. (Northwestel). Our wholesale business provides local telephone, long distance, data and other services to competitors who resell these services. Télébec, NorthernTel and Northwestel provide telecommunications services to less populated areas in Québec, Ontario and Canada’s northern territories. The Other BCE segment includes the financial results of our media, satellite and information technology (IT) activities as well as the costs incurred by our corporate office. This segment includes Bell Globemedia Inc. (Bell Globemedia), Telesat Canada (Telesat) and CGI Group Inc. (CGI). In classifying our operations for planning and measuring performance, all restructuring and other items at Bell Canada and its subsidiaries (excluding Aliant) are included in the Other Bell Canada segment and not allocated to the Consumer and Business segments.

34 2004 Quarterly Report Bell Canada Enterprises

| NOTE
2. SEGMENTED INFORMATION (continued) | | | | | | | | | |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| | | Three
months | | | | Nine
months | | | |
| For the period ended September 30 | | 2004 | | 2003 | | 2004 | | 2003 | |
| Operating revenues | | | | | | | | | |
| Consumer | External | 1,893 | | 1,821 | | 5,552 | | 5,296 | |
| | Inter-segment | 15 | | 17 | | 39 | | 39 | |
| | | 1,908 | | 1,838 | | 5,591 | | 5,335 | |
| Business | External | 1,400 | | 1,373 | | 4,139 | | 4,099 | |
| | Inter-segment | 40 | | 67 | | 177 | | 212 | |
| | | 1,440 | | 1,440 | | 4,316 | | 4,311 | |
| Aliant | External | 467 | | 478 | | 1,421 | | 1,422 | |
| | Inter-segment | 30 | | 36 | | 106 | | 110 | |
| | | 497 | | 514 | | 1,527 | | 1,532 | |
| Other
Bell Canada | External | 435 | | 442 | | 1,294 | | 1,439 | |
| | Inter-segment | 51 | | 36 | | 134 | | 108 | |
| | | 486 | | 478 | | 1,428 | | 1,547 | |
| Inter-segment
eliminations – Bell Canada | | (125 | ) | (115 | ) | (378 | ) | (357 | ) |
| Bell Canada | | 4,206 | | 4,155 | | 12,484 | | 12,368 | |
| Other
BCE | External | 586 | | 513 | | 1,798 | | 1,663 | |
| | Inter-segment | 96 | | 83 | | 263 | | 237 | |
| | | 682 | | 596 | | 2,061 | | 1,900 | |
| Inter-segment
eliminations – Other | | (107 | ) | (124 | ) | (341 | ) | (349 | ) |
| Total operating revenues | | 4,781 | | 4,627 | | 14,204 | | 13,919 | |
| Operating income | | | | | | | | | |
| Consumer | | 569 | | 552 | | 1,655 | | 1,548 | |
| Business | | 245 | | 193 | | 713 | | 582 | |
| Aliant | | 71 | | 104 | | 245 | | 307 | |
| Other
Bell Canada | | (898 | ) | 163 | | (649 | ) | 469 | |
| Bell Canada | | (13 | ) | 1,012 | | 1,964 | | 2,906 | |
| Other
BCE | | 38 | | 37 | | 177 | | 202 | |
| Total operating income | | 25 | | 1,049 | | 2,141 | | 3,108 | |
| Other
income | | 333 | | 1 | | 393 | | 48 | |
| Interest
expense | | (253 | ) | (270 | ) | (758 | ) | (839 | ) |
| Income
taxes | | 44 | | (282 | ) | (511 | ) | (788 | ) |
| Non-controlling
interest | | (47 | ) | (45 | ) | (134 | ) | (144 | ) |
| Earnings from continuing operations | | 102 | | 453 | | 1,131 | | 1,385 | |

35 2004 Quarterly Report Bell Canada Enterprises

The consolidated statements of operations include the results of acquired businesses from the date they were acquired. NOTE 3. BUSINESS ACQUISITIONS During the first nine months of 2004, we made a number of business acquisitions, which included: Bell West – In August 2004, Bell Canada acquired Manitoba Telecom Services Inc.’s (MTS) 40% interest in Bell West. Bell Canada now owns 100% of Bell West. Infostream Technologies Inc. (Infostream) – In May 2004, Bell Canada acquired 100% of the outstanding common shares of Infostream, a systems and storage technology firm providing networking solutions for Voice over Internet Protocol (VoIP), storage area networks and network management. Charon Systems Inc. (Charon) – In May 2004, Bell Canada acquired 100% of the assets of Charon, a full-service information technology (IT) solutions provider specializing in server-based computing, systems integration, IT security, software development and IT consulting. Our 28.9% proportionate share of CGI’s acquisition of American Management Systems Incorporated (AMS) – In May 2004, CGI acquired 100% of the outstanding common shares of AMS. AMS is a business and technology consulting firm to government, healthcare, financial services and telecommunications industries. Elix Inc. (Elix) – In March 2004, Bell Canada acquired 75.8% of the outstanding shares of Elix which offers technology consulting, integration and implementation of call routing and management systems, IT application integration and design and implementation of electronic voice-driven response systems. Accutel Conferencing Systems Inc. (Canada) and Accutel Conferencing Systems Corp (U.S.) (collectively Accutel) – In February 2004, Bell Canada acquired 100% of the outstanding common shares of Accutel, which provides teleconferencing services. The table below provides a summary of the consideration received and the consideration given for all business acquisitions. In all cases, the purchase price allocation is based on estimates. The final purchase price allocation for each business acquisition is expected to be complete within twelve months from the acquisition date. Of the goodwill acquired: $511 million relates to the Business segment and $150 million relates to the Other BCE segment $18 million is deductible for tax purposes.

| | 40% interest in Bell West | BCE’s
proportionate share of AMS | | All
other business acquisitions | | Total | |
| --- | --- | --- | --- | --- | --- | --- | --- |
| Consideration received: | | | | | | | |
| Non-cash
working capital | – | (70 | ) | 5 | | (65 | ) |
| Capital
assets | – | 101 | | 13 | | 114 | |
| Goodwill | 385 | 150 | | 126 | | 661 | |
| Long-term
debt | – | – | | (2 | ) | (2 | ) |
| Other
long-term liabilities | – | (13 | ) | – | | (13 | ) |
| Non-controlling
interest | 261 | – | | – | | 261 | |
| | 646 | 168 | | 142 | | 956 | |
| Cash
and cash equivalents (bank indebtedness) at acquisition | – | 20 | | (3 | ) | 17 | |
| Net assets acquired | 646 | 188 | | 139 | | 973 | |
| Consideration given: | | | | | | | |
| Cash | 645 | 182 | | 134 | | 961 | |
| Acquisition
costs | 1 | 6 | | 1 | | 8 | |
| Future
cash payment | – | – | | 4 | | 4 | |
| | 646 | 188 | | 139 | | 973 | |

36 2004 Quarterly Report Bell Canada Enterprises

| NOTE
4. EMPLOYEE BENEFIT PLANS The table below shows the
components of the net benefit plans cost. | | | | | | | | | | | | | | | | |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| | | | Three
months | | | | | | | | Nine
months | | | | | |
| | Pension
benefits | | | | Other
benefits | | | | Pension
benefits | | | | Other
benefits | | | |
| For the period ended September 30 | 2004 | | 2003 | | 2004 | | 2003 | | 2004 | | 2003 | | 2004 | | 2003 | |
| Current
service cost | 58 | | 55 | | 7 | | 8 | | 182 | | 166 | | 23 | | 23 | |
| Interest
cost on accrued | | | | | | | | | | | | | | | | |
| benefit
obligation | 201 | | 190 | | 26 | | 26 | | 604 | | 568 | | 78 | | 78 | |
| Expected
return on plan assets | (237 | ) | (233 | ) | (2 | ) | (2 | ) | (714 | ) | (701 | ) | (7 | ) | (7 | ) |
| Amortization
of past service costs | 2 | | 2 | | – | | – | | 7 | | 7 | | – | | – | |
| Amortization
of net actuarial losses | 8 | | 6 | | 1 | | – | | 24 | | 17 | | 1 | | – | |
| Amortization
of transitional (asset) obligation | (11 | ) | (11 | ) | 7 | | 7 | | (33 | ) | (33 | ) | 22 | | 22 | |
| Increase
(decrease) in valuation allowance | 1 | | (3 | ) | – | | – | | 2 | | (9 | ) | – | | – | |
| Other | – | | (1 | ) | – | | – | | – | | (2 | ) | – | | – | |
| Net benefit plans cost | 22 | | 5 | | 39 | | 39 | | 72 | | 13 | | 117 | | 116 | |

| The
table below shows the amounts we contributed to the pension plans and
the post-employment benefit payments made to beneficiaries. | | | | | | | | |
| --- | --- | --- | --- | --- | --- | --- | --- | --- |
| | | Three months | | | | Nine months | | |
| | Pension benefits | | Other benefits | | Pension benefits | | Other
benefits | |
| For the period ended September 30 | 2004 | 2003 | 2004 | 2003 | 2004 | 2003 | 2004 | 2003 |
| Aliant | 16 | 34 | 1 | 1 | 54 | 51 | 3 | 3 |
| Bell Canada | 5 | 4 | 12 | 21 | 14 | 9 | 56 | 61 |
| Bell
Globemedia | 8 | 6 | – | – | 13 | 8 | – | – |
| BCE Inc. | 3 | 2 | – | – | 7 | 5 | – | – |
| Total | 32 | 46 | 13 | 22 | 88 | 73 | 59 | 64 |

| NOTE
5. RESTRUCTURING AND OTHER ITEMS | | | | | | | | |
| --- | --- | --- | --- | --- | --- | --- | --- | --- |
| | Three
months | | | | Nine
months | | | |
| For the period ended September 30 | 2004 | | 2003 | | 2004 | | 2003 | |
| Employee
departure program | (985 | ) | – | | (985 | ) | – | |
| Settlement
with MTS | – | | – | | 75 | | – | |
| Provision
for contract loss | – | | – | | (110 | ) | – | |
| Other
charges | (96 | ) | (1 | ) | (78 | ) | (1 | ) |
| Restructuring and other items | (1,081 | ) | (1 | ) | (1,098 | ) | (1 | ) |

Employee departure program During the third quarter of 2004, we recorded a pre-tax charge of $985 million ($647 million after taxes) in the Other Bell Canada segment. The charge relates to the two-phase employee departure program, which was announced by Bell Canada in June 2004. The first phase was an early retirement plan and in the third quarter of 2004, 3,965 employees elected to receive a package that included a cash allowance, immediate pension benefits, an additional guaranteed pension payable up to 65 years of age, career transition services and post-employment benefits. The second phase was a departure plan and in the third quarter of 2004, 1,087 employees elected to receive a special cash allowance. An additional charge of approximately $75 million is expected to be incurred in the future for the relocation of employees and closure of excess real estate facilities. These costs are not eligible for recognition at September 30, 2004 and will be expensed as incurred. The employee departure program is expected to be substantially complete by the end of 2004.

37 2004 Quarterly Report Bell Canada Enterprises

| NOTE
5. RESTRUCTURING AND OTHER ITEMS (continued) The
table below provides a summary of the costs recognized in the third quarter
of 2004, as well as the corresponding liability at September 30, 2004. — Employee
departure program costs | 985 | |
| --- | --- | --- |
| Less: | | |
| Cash
payments | (5 | ) |
| Pension
and other post-retirement benefits reclassified to: | | |
| Other
long-term assets | (660 | ) |
| Other
long-term liabilities | (11 | ) |
| Balance in accounts payable and accrued
liabilities at September 30, 2004 | 309 | |

Settlement with MTS On May 20, 2004, Bell Canada filed a lawsuit against MTS seeking damages from MTS and an injunction to prevent MTS from breaching the terms and conditions of the commercial agreements between the two companies as a result of the announcement by MTS to purchase Allstream Inc. (Allstream). On June 3, 2004, Bell Canada also filed a lawsuit against Allstream seeking damages in connection with the same announcement. On June 30, 2004, BCE Inc. reached an agreement with MTS to settle the lawsuits. The terms of the settlement included: a payment of $75 million by MTS to Bell Canada, recorded in the second quarter of 2004 and received on August 3, 2004, for unwinding various commercial agreements the removal of contractual competitive restrictions thereby allowing Bell Canada and MTS to compete freely with each other, effective June 30, 2004 the orderly disposition of our interest in MTS. Our voting rights in MTS were waived after the receipt of the $75 million payment. We sold our interest in MTS in September 2004. See Note 6, Other income , for more information. a premium payment by MTS to us, in the event a change of control of MTS occurs before 2006, in an amount equal to the appreciation in MTS’s share price from the time of our divestiture to the time of any takeover transaction the provision of wholesale services between Bell Canada and MTS on a preferred supplier basis. Provision for contract loss In 2001, we entered into a contract with the Government of Alberta to build a next generation network to bring high-speed internet and broadband capabilities to rural communities in Alberta. This contract is accounted for using the percentage of completion method. During the second quarter of 2004, as part of our regular update of the estimated costs to complete construction of the network, potential cost overruns were identified. Construction is to be complete in late 2004. The costs of this last phase of construction are higher than previously estimated, due to changes necessitated in construction methods to connect individual government buildings to the network and higher average costs of construction. We recorded a provision of $110 million for this contract in the second quarter of 2004. Our estimated costs to complete are unchanged at September 30, 2004. Other charges During the third quarter of 2004, we recorded other pre-tax charges totalling $96 million ($78 million after taxes), which consisted primarily of future lease costs for excess facilities, asset write-downs and other provisions. Prior to the third quarter of 2004, we recorded a credit of $18 million which related primarily to the reversal of previously recorded restructuring charges, which were no longer necessary given the introduction of a new voluntary employee departure program.

38 2004 Quarterly Report Bell Canada Enterprises

| NOTE
6. OTHER INCOME | | | | | | | |
| --- | --- | --- | --- | --- | --- | --- | --- |
| | Three
months | | | | Nine
months | | |
| For
the period ended September 30 | 2004 | | 2003 | | 2004 | | 2003 |
| Net
gains on investments | 325 | | – | | 331 | | – |
| Foreign
currency gains (losses) | (2 | ) | (6 | ) | (4 | ) | 32 |
| Other | 10 | | 7 | | 66 | | 16 |
| Other income | 333 | | 1 | | 393 | | 48 |

In the third quarter of 2004, net gains on investments of $325 million included: a gain of $108 million from the sale of Bell Canada’s remaining 3.24% interest in YPG General Partner Inc. for net cash proceeds of $123 million a gain of $217 million realized from the sale of BCE Inc.’s 15.96% interest in MTS for net cash proceeds of $584 million. On August 1, 2004, as a result of a corporate reorganization, the MTS shares were transferred from Bell Canada to BCE Inc. The purpose of this reorganization was to ensure that capital loss carryforwards at BCE Inc. would be available to be utilized against the gain on the sale of the MTS shares. Capital loss carryforwards were available to be utilized against the gains realized on these sale.

NOTE 7. DISCONTINUED OPERATIONS

| For the period ended September 30 | Three
months — 2004 | | 2003 | Nine
months — 2004 | 2003 |
| --- | --- | --- | --- | --- | --- |
| Emergis | (2 | ) | 11 | 25 | 24 |
| Other | – | | – | 3 | 6 |
| Net
gain (loss) from discontinued operations | (2 | ) | 11 | 28 | 30 |

| The
table below provides a summarized statement of operations for the discontinued
operations. | | | | | | | | |
| --- | --- | --- | --- | --- | --- | --- | --- | --- |
| | Three
months | | | | Nine
months | | | |
| For the period ended September 30 | 2004 | | 2003 | | 2004 | | 2003 | |
| Revenue | – | | 244 | | 128 | | 765 | |
| Operating
gain (loss) from discontinued operations, before tax | – | | 33 | | (52 | ) | 76 | |
| Gain
(loss) from discontinued operations, before tax | (2 | ) | (1 | ) | 72 | | 10 | |
| Income
tax expense on operating gain (loss) | – | | (12 | ) | (11 | ) | (23 | ) |
| Income
tax recovery (expense) on gain (loss) | – | | 2 | | (3 | ) | (1 | ) |
| Non-controlling
interest | – | | (11 | ) | 22 | | (32 | ) |
| Net
gain (loss) from discontinued operations | (2 | ) | 11 | | 28 | | 30 | |

Emergis provides eBusiness solutions to the financial services industry in North America and the health industry in Canada. It automates transactions between companies and allows them to interact and transact electronically. The Security business provides organizations with the security infrastructure for their electronic service delivery. Sale of Emergis In May 2004, our board of directors approved the sale of our 63.9% interest in Emergis. In June 2004, BCE completed the sale of its interest in Emergis by way of a secondary public offering. In June 2004, Bell Canada paid $49 million to Emergis for the purchase of Emergis’ Security business and the early termination of the Bell Legacy Contract on June 30, 2004 rather than December 31, 2004, as well as the transfer of related intellectual property to Bell Canada. These transactions were recorded on a net basis. The net proceeds from the sale of Emergis were $285 million (net of $22 million of selling costs and $49 million consideration given to Emergis). The gain on the transaction was $60 million. The operating loss includes a future income tax asset impairment charge of $56 million ($36 million after non-controlling interest), which Emergis recorded before the sale as a result of the unwinding of tax loss utilization strategies between Emergis, 4122780 Canada Inc. (a wholly-owned subsidiary of Emergis) and Bell Canada. Emergis was presented previously in the Other BCE segment.

39 2004 Quarterly Report Bell Canada Enterprises

| NOTE
8. STOCK-BASED COMPENSATION PLANS Restricted share units
(RSUs) | | |
| --- | --- | --- |
| | Number
of | |
| | RSUs | |
| Outstanding,
January 1, 2004 | – | |
| Granted | 1,944,735 | |
| Expired/forfeited | (30,437 | ) |
| Outstanding, September 30, 2004 | 1,914,298 | |
| For
the three months and nine months ended September 30, 2004, we
recorded compensation expense for RSUs of $7 million and $17 million,
respectively. | | |

| BCE Inc. stock options The table below is a summary
of the status of BCE Inc.’s stock option programs. | | | |
| --- | --- | --- | --- |
| | | | Weighted |
| | Number | | average |
| | of
shares | | exercise
price |
| Outstanding,
January 1, 2004 | 24,795,545 | | $32 |
| Granted | 5,589,476 | | $30 |
| Exercised | (828,659 | ) | $17 |
| Expired/forfeited | (918,373 | ) | $34 |
| Outstanding, September 30, 2004 | 28,637,989 | | $32 |
| Exercisable, September 30, 2004 | 14,404,039 | | $33 |

| Teleglobe stock options The table below is a summary of
the status of Teleglobe’s stock option programs. | Number | | Weighted |
| --- | --- | --- | --- |
| | of
BCE Inc. | | average |
| | shares | | exercise price |
| Outstanding,
January 1, 2004 | 955,175 | | $21 |
| Exercised | (102,828 | ) | $18 |
| Expired/forfeited | (24,685 | ) | $43 |
| Outstanding and exercisable, September 30, 2004 | 827,662 | | $21 |

Assumptions used in stock option pricing model The table below shows the assumptions used to determine stock-based compensation expense using the Black-Scholes option pricing model.

| For the period ended September 30 | Three
months — 2004 | 2003 | Nine months — 2004 | 2003 |
| --- | --- | --- | --- | --- |
| Compensation
expense ($ millions) | 9 | 7 | 23 | 19 |
| Number
of stock options granted | 139,700 | 410,000 | 5,589,476 | 5,928,051 |
| Weighted
average fair value per option granted ($) | 3 | 7 | 3 | 6 |
| Weighted
average assumptions | | | | |
| Dividend
yield | 4.3 % | 3.7 % | 4.0 % | 3.6 % |
| Expected
volatility | 26 % | 30 % | 27 % | 30 % |
| Risk-free
interest rate | 3.7 % | 3.6 % | 3.1 % | 4.0 % |
| Expected
life (years) | 3.5 | 4.5 | 3.5 | 4.5 |
| Starting
in 2004, most of the stock options granted contain specific performance
targets that must be met before the option can be exercised. This is reflected
in the calculation of the weighted average fair value per option granted. | | | | |

40 2004 Quarterly Report Bell Canada Enterprises

NOTE 9. COMMITMENTS AND CONTINGENCIES Agreement to purchase Canadian operations of 360networks Corporation In May 2004, Bell Canada announced an agreement to purchase the Canadian operations of 360networks Corporation for $275 million in cash. The purchase includes the shares of 360networks’ subsidiary GT Group Telecom Services Corporation, and certain related U.S. interconnect assets. Bell Canada plans to retain all of 360networks’ business, facilities and customer base in western Canada, and has an agreement to sell the retail customer operations and certain assets in central and eastern Canada to Call-Net Enterprises Inc. while continuing to provide network and other services to the central and eastern customer base for a share of future revenues. All regulatory approvals have been obtained and we expect to close the transaction in November 2004, subject to usual closing conditions. Litigation Teleglobe unsecured creditors lawsuit On May 26, 2004, a lawsuit was filed in the United States Bankruptcy Court for the District of Delaware. The United States District Court for the District of Delaware subsequently withdrew the reference from the Bankruptcy Court and the matter is now pending in the District Court for the District of Delaware. The lawsuit is against BCE Inc. and ten former directors and officers of Teleglobe Inc. and certain of its subsidiaries. The plaintiffs are comprised of Teleglobe Communications Corporation, certain of its affiliated debtors and debtors in possession, and the Official Committee of Unsecured Creditors of these debtors. The lawsuit alleges breach of an alleged funding commitment of BCE Inc. towards the debtors, promissory estoppel, misrepresentation by BCE Inc. and breach and aiding and abetting breaches of fiduciary duty by the defendants. The plaintiffs seek an unspecified amount of damages against the defendants. While no one can predict the outcome of any legal proceeding, based on information currently available, BCE Inc. believes that it has strong defences, and it intends to vigorously defend its position.

41 2004 Quarterly Report Bell Canada Enterprises

| BCE Inc. 1000, rue de La
Gauchetière Ouest Bureau 3700 Montréal (Québec) H3B 4Y7 www.bce.ca Communications e-mail: bcecomms@bce.ca tel:1 888 932-6666 fax: (514) 870-4385 | For
further information concerning the Dividend Reinvestment and Stock Purchase
Plan (DRP), direct deposit of dividend payments, the elimination of multiple
mailings or the receipt of quarterly reports, please contact: Computershare
Trust Company of Canada 100 University Avenue, 9th Floor, Toronto, Ontario M5J 2Y1 tel: (514) 982-7555 or 1 800 561-0934 fax: (416) 263-9394 or 1 888 453-0330 e-mail: bce@computershare.com |
| --- | --- |
| ● | PRINTED
IN CANADA 04-10 BCE-3E |

BCE Investor Relations

| Sophie
Argiriou | 514-786-8145 | sophie.argiriou@bell.ca |
| --- | --- | --- |
| George
Walker | 514-870-2488 | george.walker@bell.ca |
| Roland
Ribotti | 514-870-9034 | roland.ribotti@bell.ca |

BCE Consolidated (1) Consolidated Operational Data

| ($
millions, except per share amounts) — Operating
revenues | 4,781 | | Q3 2003 — 4,627 | | $
change — 154 | | %
change — 3.3% | | 14,204 | | YTD September 2003 — 13,919 | | $
change — 285 | | %change — 2.0% | |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| Operating
expenses | (2,845 | ) | (2,732 | ) | (113 | ) | (4.1% | ) | (8,471 | ) | (8,356 | ) | (115 | ) | (1.4% | ) |
| EBITDA (2) | 1,936 | | 1,895 | | 41 | | 2.2% | | 5,733 | | 5,563 | | 170 | | 3.1% | |
| EBITDA
margin (3) | 40.5% | | 41.0% | | | | (0.5
pts | ) | 40.4% | | 40.0% | | | | 0.4
pts | |
| Amortization
expense | (769 | ) | (801 | ) | 32 | | 4.0% | | (2,305 | ) | (2,325 | ) | 20 | | 0.9% | |
| Net benefit
plans cost | (61 | ) | (44 | ) | (17 | ) | (38.6% | ) | (189 | ) | (129 | ) | (60 | ) | (46.5% | ) |
| Restructuring
and other items | (1,081 | ) | (1 | ) | (1,080 | ) | n.m. | | (1,098 | ) | (1 | ) | (1,097 | ) | n.m. | |
| Operating
income | 25 | | 1,049 | | (1,024 | ) | (97.6% | ) | 2,141 | | 3,108 | | (967 | ) | (31.1% | ) |
| Other income | 333 | | 1 | | 332 | | n.m. | | 393 | | 48 | | 345 | | n.m. | |
| Interest
expense | (253 | ) | (270 | ) | 17 | | 6.3% | | (758 | ) | (839 | ) | 81 | | 9.7% | |
| Pre-tax
earnings from continuing operations | 105 | | 780 | | (675 | ) | (86.5% | ) | 1,776 | | 2,317 | | (541) | | (23.3% | ) |
| Income
taxes | 44 | | (282 | ) | 326 | | n.m. | | (511 | ) | (788 | ) | 277 | | 35.2% | |
| Non-controlling
interest | (47 | ) | (45 | ) | (2 | ) | (4.4% | ) | (134 | ) | (144 | ) | 10 | | 6.9% | |
| Earnings
from continuing operations | 102 | | 453 | | (351 | ) | (77.5% | ) | 1,131 | | 1,385 | | (254) | | (18.3% | ) |
| Discontinued
operations | (2 | ) | 11 | | (13 | ) | n.m. | | 28 | | 30 | | (2 | ) | (6.7% | ) |
| Net
earnings | 100 | | 464 | | (364 | ) | (78.4% | ) | 1,159 | | 1,415 | | (256 | ) | (18.1% | ) |
| Dividends
on preferred shares | (18 | ) | (18 | ) | - | | 0.0% | | (53 | ) | (50 | ) | (3 | ) | (6.0% | ) |
| Premium
on redemption of preferred shares | - | | - | | - | | n.m. | | - | | (7 | ) | 7 | | n.m. | |
| Net
earnings applicable to common shares | 82 | | 446 | | (364 | ) | (81.6% | ) | 1,106 | | 1,358 | | (252 | ) | (18.6% | ) |
| Net
earnings per common share - basic | | | | | | | | | | | | | | | | |
| Continuing
operations | $ 0.09 | $ | 0.48 | $ | (0.39 | ) | (81.3% | ) | $ 1.17 | $ | 1.46 | $ | (0.29 | ) | (19.9% | ) |
| Discontinued
operations | $ - | $ | 0.01 | $ | (0.01 | ) | n.m. | | $ 0.03 | $ | 0.03 | $ | - | | 0.0% | |
| Net earnings | $ 0.09 | $ | 0.49 | $ | (0.40 | ) | (81.6% | ) | $ 1.20 | $ | 1.49 | $ | (0.29 | ) | (19.5% | ) |
| Net
earnings per common share - diluted | | | | | | | | | | | | | | | | |
| Continuing
operations | $ 0.08 | $ | 0.47 | $ | (0.39 | ) | (83.0% | ) | $ 1.16 | $ | 1.45 | $ | (0.29 | ) | (20.0% | ) |
| Discontinued
operations | $ - | $ | 0.01 | $ | (0.01 | ) | n.m. | | $ 0.03 | $ | 0.03 | $ | - | | 0.0% | |
| Net earnings | $ 0.08 | $ | 0.48 | $ | (0.40 | ) | (83.3% | ) | $ 1.19 | $ | 1.48 | $ | (0.29 | ) | (19.6% | ) |
| Dividends
per common share | $ 0.30 | $ | 0.30 | $ | - | | 0.0% | | $ 0.90 | $ | 0.90 | $ | - | | 0.0% | |
| Average
number of common shares outstanding - basic (millions) | 924.6 | | 921.5 | | | | | | 924.4 | | 919.3 | | | | | |

| The
following items are included in net earnings: | | | | | | |
| --- | --- | --- | --- | --- | --- | --- |
| Net
gains on sale of investments and dilution gains | | | | | | |
| Continuing
operations | 325 | | - | 325 | | - |
| Discontinued
operations | (2 | ) | 8 | 36 | | 8 |
| Restructuring
and other items | (725 | ) | 6 | (710 | ) | 6 |
| Total | (402 | ) | 14 | (349 | ) | 14 |
| Impact
on net earnings per share | $ (0.43 | ) | $ 0.01 | $ (0.37 | ) | $ 0.01 |

n.m. : not meaningful

BCE Inc. Supplementary Financial Information - Third Quarter 2004 Page 2

BCE Consolidated (1) Consolidated Operational Data — Historical Trend

| ($ millions,
except per share amounts) | 2004 | | Q3
04 | | Q2
04 | | Q1
04 | | Total — 2003 | | Q4
03 | | Q3
03 | | Q2
03 | | Q1
03 | |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| Operating
revenues | 14,204 | | 4,781 | | 4,782 | | 4,641 | | 18,737 | | 4,818 | | 4,627 | | 4,673 | | 4,619 | |
| Operating
expenses | (8,471 | ) | (2,845 | ) | (2,829 | ) | (2,797 | ) | (11,327 | ) | (2,971 | ) | (2,732 | ) | (2,778 | ) | (2,846 | ) |
| EBITDA (2) | 5,733 | | 1,936 | | 1,953 | | 1,844 | | 7,410 | | 1,847 | | 1,895 | | 1,895 | | 1,773 | |
| EBITDA
margin (3) | 40.4% | | 40.5% | | 40.8% | | 39.7% | | 39.5% | | 38.3% | | 41.0% | | 40.6% | | 38.4% | |
| Amortization
expense | (2,305 | ) | (769 | ) | (769 | ) | (767 | ) | (3,100 | ) | (775 | ) | (801 | ) | (774 | ) | (750 | ) |
| Net benefit
plans cost | (189 | ) | (61 | ) | (65 | ) | (63 | ) | (175 | ) | (46 | ) | (44 | ) | (43 | ) | (42 | ) |
| Restructuring
and other items | (1,098 | ) | (1,081 | ) | (14 | ) | (3 | ) | (14 | ) | (13 | ) | (1 | ) | - | | - | |
| Operating
income | 2,141 | | 25 | | 1,105 | | 1,011 | | 4,121 | | 1,013 | | 1,049 | | 1,078 | | 981 | |
| Other
income | 393 | | 333 | | 24 | | 36 | | 175 | | 127 | | 1 | | 2 | | 45 | |
| Interest
expense | (758 | ) | (253 | ) | (253 | ) | (252 | ) | (1,105 | ) | (266 | ) | (270 | ) | (289 | ) | (280 | ) |
| Pre-tax
earnings from continuing operations | 1,776 | | 105 | | 876 | | 795 | | 3,191 | | 874 | | 780 | | 791 | | 746 | |
| Income
taxes | (511 | ) | 44 | | (293 | ) | (262 | ) | (1,119 | ) | (331 | ) | (282 | ) | (268 | ) | (238 | ) |
| Non-controlling
interest | (134 | ) | (47 | ) | (39 | ) | (48 | ) | (201 | ) | (57 | ) | (45 | ) | (57 | ) | (42 | ) |
| Earnings
from continuing operations | 1,131 | | 102 | | 544 | | 485 | | 1,871 | | 486 | | 453 | | 466 | | 466 | |
| Discontinued
operations | 28 | | (2) | | 27 | | 3 | | (56 | ) | (86 | ) | 11 | | 12 | | 7 | |
| Net
earnings | 1,159 | | 100 | | 571 | | 488 | | 1,815 | | 400 | | 464 | | 478 | | 473 | |
| Dividends
on preferred shares | (53 | ) | (18 | ) | (17 | ) | (18 | ) | (64 | ) | (14 | ) | (18 | ) | (17 | ) | (15 | ) |
| Premium
on redemption of preferred shares | - | | - | | - | | - | | (7 | ) | - | | - | | - | | (7 | ) |
| Net
earnings applicable to common shares | 1,106 | | 82 | | 554 | | 470 | | 1,744 | | 386 | | 446 | | 461 | | 451 | |
| Net
earnings per common share - basic | | | | | | | | | | | | | | | | | | |
| Continuing
operations | $ 1.17 | $ | 0.09 | $ | 0.57 | $ | 0.51 | $ | 1.96 | | $ 0.50 | | $ 0.48 | $ | 0.49 | $ | 0.49 | |
| Discontinued
operations | $ 0.03 | $ | - | $ | 0.03 | $ | - | $ | (0.06 | ) | $ (0.09 | ) | $ 0.01 | $ | 0.01 | $ | 0.01 | |
| Net
earnings | $ 1.20 | $ | 0.09 | $ | 0.60 | $ | 0.51 | $ | 1.90 | | $ 0.41 | | $ 0.49 | $ | 0.50 | $ | 0.50 | |
| Net
earnings per common share - diluted | | | | | | | | | | | | | | | | | | |
| Continuing
operations | $ 1.16 | $ | 0.08 | $ | 0.57 | $ | 0.51 | $ | 1.95 | | $ 0.50 | | $ 0.47 | $ | 0.49 | $ | 0.49 | |
| Discontinued
operations | $ 0.03 | $ | - | $ | 0.03 | $ | - | $ | (0.06 | ) | $ (0.09 | ) | $ 0.01 | $ | 0.01 | $ | 0.01 | |
| Net
earnings | $ 1.19 | $ | 0.08 | $ | 0.60 | $ | 0.51 | $ | 1.89 | | $ 0.41 | | $ 0.48 | $ | 0.50 | $ | 0.50 | |
| Dividends
per common share | $ 0.90 | $ | 0.30 | $ | 0.30 | $ | 0.30 | $ | 1.20 | | $ 0.30 | | $ 0.30 | $ | 0.30 | $ | 0.30 | |
| Average
number of common shares outstanding - basic (millions) | 924.4 | | 924.6 | | 924.3 | | 924.1 | | 920.3 | | 923.4 | | 921.5 | | 919.3 | | 917.1 | |

| The
following items are included in net earnings: | | | | | | | | | | | | | | |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| Net
gains on sale of investments and dilution gains | | | | | | | | | | | | | | |
| Continuing
operations | 325 | | 325 | | - | - | | 84 | | 84 | | - | - | - |
| Discontinued
operations | 36 | | (2 | ) | 31 | 7 | | (86 | ) | (94 | ) | 8 | - | - |
| Restructuring
and other items | (710 | ) | (725 | ) | 16 | (1 | ) | (3 | ) | (9 | ) | 6 | - | - |
| Total | (349 | ) | (402 | ) | 47 | 6 | | (5 | ) | (19 | ) | 14 | - | - |
| Impact
on net earnings per share | $ (0.37 | ) | $ (0.43 | ) | $ 0.05 | $ 0.01 | $ | - | $ | (0.01 | ) | $ 0.01 | $ - | $ - |

BCE Inc. Supplementary Financial Information - Third Quarter 2004 Page 3

BCE Consolidated (1) Segmented Data

($ millions, except where otherwise indicated)	Q3 2004		Q3 2003		$ change		% change		YTD September 2004		YTD September 2003		$ change		%change
Revenues
Consumer	1,908		1,838		70		3.8%		5,591		5,335		256		4.8%
Business	1,440		1,440		-		0.0%		4,316		4,311		5		0.1%
Aliant	497		514		(17	)	(3.3%	)	1,527		1,532		(5	)	(0.3%	)
Other
Bell Canada	486		478		8		1.7%		1,428		1,547		(119	)	(7.7%	)
Inter-segment
eliminations	(125	)	(115	)	(10	)	(8.7%	)	(378	)	(357	)	(21	)	(5.9%	)
Total Bell
Canada	4,206		4,155		51		1.2%		12,484		12,368		116		0.9%
Other
BCE
Bell Globemedia	302		296		6		2.0%		1,015		988		27		2.7%
Advertising	209		201		8		4.0%		735		695		40		5.8%
Subscriber	73		73		-		0.0%		221		222		(1	)	(0.5%	)
Production
and Sundry	20		22		(2	)	(9.1%	)	59		71		(12	)	(16.9%	)
Telesat	91		84		7		8.3%		260		246		14		5.7%
CGI	277		203		74		36.5%		745		630		115		18.3%
Other	12		13		(1	)	(7.7%	)	41		36		5		13.9%
Total Other
BCE	682		596		86		14.4%		2,061		1,900		161		8.5%
Inter-segment
eliminations	(107	)	(124	)	17		13.7%		(341	)	(349	)	8		2.3%
Total
revenues	4,781		4,627		154		3.3%		14,204		13,919		285		2.0%
Operating
income
Consumer	569		552		17		3.1%		1,655		1,548		107		6.9%
Business	245		193		52		26.9%		713		582		131		22.5%
Aliant	71		104		(33	)	(31.7%	)	245		307		(62	)	(20.2%	)
Other
Bell Canada	(898	)	163		(1,061	)	n.m.		(649	)	469		(1,118	)	n.m.
Total Bell
Canada	(13	)	1,012		(1,025	)	n.m.		1,964		2,906		(942	)	(32.4%	)
Other
BCE
Bell
Globemedia	23		20		2		10.0%		137		101		35		34.7%
Telesat	39		28		11		39.3%		104		91		13		14.3%
CGI	24		23		1		4.3%		70		69		1		1.4%
Other	(48	)	(34	)	(13	)	(38.2%	)	(134	)	(59	)	(74	)	n.m.
Total
Other BCE	38		37		1		2.7%		177		202		(25	)	(12.4%	)
Total
Operating income	25		1,049		(1,024	)	(97.6%	)	2,141		3,108		(967	)	(31.1%	)
Capital
expenditures (4)
Consumer	406		307		(99	)	(32.2%	)	1,022		802		(220	)	(27.4%	)
Business	154		228		74		32.5%		609		650		41		6.3%
Aliant	51		92		41		44.6%		181		236		55		23.3%
Other
Bell Canada	125		81		(44	)	(54.3%	)	229		213		(16	)	(7.5%	)
Total
Bell Canada	736		708		(28	)	(4.0%	)	2,041		1,901		(140	)	(7.4%	)
Other
BCE
Telesat	64		64		-		0.0%		217		116		(101	)	(87.1%	)
Other	11		19		8		42.1%		60		71		11		15.5%
Total
capital expenditures	811		791		(20	)	(2.5%	)	2,318		2,088		(230	)	(11.0%	)

BCE Inc. Supplementary Financial Information - Third Quarter 2004 Page 4

BCE Consolidated (1) Segmented Data — Historical Trend

| ($
millions, except per share amounts) | YTD — 2004 | Q3
04 | Q2
04 | Q1
04 | Total — 2003 | Q4
03 | Q3
03 | Q2
03 | Q1
03 |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| Revenues | | | | | | | | | |
| Consumer | 5,591 | 1,908 | 1,858 | 1,825 | 7,203 | 1,868 | 1,838 | 1,768 | 1,729 |
| Business | 4,316 | 1,440 | 1,441 | 1,435 | 5,827 | 1,516 | 1,440 | 1,452 | 1,419 |
| Aliant | 1,527 | 497 | 526 | 504 | 2,059 | 527 | 514 | 517 | 501 |
| Other Bell
Canada | 1,428 | 486 | 468 | 474 | 2,015 | 468 | 478 | 517 | 552 |
| Inter-segment
eliminations | (378) | (125) | (121) | (132) | (490) | (133) | (115) | (124) | (118) |
| Total
Bell Canada | 12,484 | 4,206 | 4,172 | 4,106 | 16,614 | 4,246 | 4,155 | 4,130 | 4,083 |
| Other BCE | | | | | | | | | |
| Bell
Globemedia | 1,015 | 302 | 371 | 342 | 1,363 | 375 | 296 | 357 | 335 |
| Advertising | 735 | 209 | 277 | 249 | 978 | 283 | 201 | 259 | 235 |
| Subscriber | 221 | 73 | 74 | 74 | 291 | 69 | 73 | 75 | 74 |
| Production
and Sundry | 59 | 20 | 20 | 19 | 94 | 23 | 22 | 23 | 26 |
| Telesat | 260 | 91 | 85 | 84 | 345 | 99 | 84 | 83 | 79 |
| CGI | 745 | 277 | 251 | 217 | 838 | 208 | 203 | 211 | 216 |
| Other | 41 | 12 | 18 | 11 | 51 | 15 | 13 | 13 | 10 |
| Total
Other BCE | 2,061 | 682 | 725 | 654 | 2,597 | 697 | 596 | 664 | 640 |
| Inter-segment
eliminations | (341) | (107) | (115) | (119) | (474) | (125) | (124) | (121) | (104) |
| Total revenues | 14,204 | 4,781 | 4,782 | 4,641 | 18,737 | 4,818 | 4,627 | 4,673 | 4,619 |
| Operating income | | | | | | | | | |
| Consumer | 1,655 | 569 | 560 | 526 | 2,019 | 471 | 552 | 503 | 493 |
| Business | 713 | 245 | 227 | 241 | 781 | 199 | 193 | 199 | 190 |
| Aliant | 245 | 71 | 92 | 82 | 415 | 108 | 104 | 122 | 81 |
| Other Bell
Canada | (649) | (898) | 138 | 111 | 621 | 152 | 163 | 144 | 162 |
| Total
Bell Canada | 1,964 | (13) | 1,017 | 960 | 3,836 | 930 | 1,012 | 968 | 926 |
| Other BCE | | | | | | | | | |
| Bell
Globemedia | 137 | 23 | 74 | 40 | 167 | 66 | 20 | 62 | 19 |
| Telesat | 104 | 39 | 34 | 31 | 124 | 33 | 28 | 31 | 32 |
| CGI | 70 | 24 | 25 | 21 | 91 | 22 | 23 | 24 | 22 |
| Other | (134) | (48) | (45) | (41) | (97) | (38) | (34) | (7) | (18) |
| Total
Other BCE | 177 | 38 | 88 | 51 | 285 | 83 | 37 | 110 | 55 |
| Total Operating
Income | 2,141 | 25 | 1,105 | 1,011 | 4,121 | 1,013 | 1,049 | 1,078 | 981 |
| Capital expenditures (4) | | | | | | | | | |
| Consumer | 1,022 | 406 | 354 | 262 | 1,287 | 485 | 307 | 287 | 208 |
| Business | 609 | 154 | 258 | 197 | 936 | 286 | 228 | 229 | 193 |
| Aliant | 181 | 51 | 45 | 85 | 333 | 97 | 92 | 73 | 71 |
| Other Bell
Canada | 229 | 125 | 58 | 46 | 336 | 123 | 81 | 70 | 62 |
| Total
Bell Canada | 2,041 | 736 | 715 | 590 | 2,892 | 991 | 708 | 659 | 534 |
| Other BCE | | | | | | | | | |
| Telesat | 217 | 64 | 88 | 65 | 159 | 43 | 64 | 16 | 36 |
| Other | 60 | 11 | 23 | 26 | 116 | 45 | 19 | 31 | 21 |
| Total capital
expenditures | 2,318 | 811 | 826 | 681 | 3,167 | 1,079 | 791 | 706 | 591 |

BCE Inc. Supplementary Financial Information - Third Quarter 2004 Page 5

BCE Consolidated (1) Consolidated Balance Sheet Data

| | September
30 | June
30 | March 31 | December 31 |
| --- | --- | --- | --- | --- |
| ($ millions,
except where otherwise indicated) | 2004 | 2004 | 2004 | 2003 |
| ASSETS | | | | |
| Current
assets | | | | |
| Cash
and cash equivalents | 1,386 | 577 | 1,135 | 585 |
| Accounts
receivable | 2,491 | 2,292 | 2,267 | 2,061 |
| Other
current assets | 892 | 900 | 869 | 739 |
| Current
assets of discontinued operations | - | 8 | 447 | 280 |
| Total
current assets | 4,769 | 3,777 | 4,718 | 3,665 |
| Capital
assets | 21,111 | 20,995 | 20,833 | 21,114 |
| Other
long-term assets | 2,494 | 3,609 | 3,475 | 3,459 |
| Indefinite-life
intangible assets | 2,910 | 2,910 | 2,910 | 2,910 |
| Goodwill | 8,368 | 7,987 | 7,803 | 7,761 |
| Non-current
assets of discontinued operations | 50 | 50 | 310 | 511 |
| Total
assets | 39,702 | 39,328 | 40,049 | 39,420 |
| LIABILITIES | | | | |
| Current liabilities | | | | |
| Accounts
payable and accrued liabilities | 4,537 | 3,648 | 3,602 | 3,534 |
| Debt
due within one year | 1,516 | 1,030 | 1,156 | 1,519 |
| Current
liabilities of discontinued operations | - | - | 214 | 285 |
| Total
current liabilities | 6,053 | 4,678 | 4,972 | 5,338 |
| Long-term
debt | 12,076 | 12,492 | 13,112 | 12,381 |
| Other
long-term liabilities | 4,790 | 4,884 | 4,768 | 4,705 |
| Non-current
liabilities of discontinued operations | - | - | 20 | 20 |
| Total
liabilities | 22,919 | 22,054 | 22,872 | 22,444 |
| Non-controlling
interest | 2,904 | 3,203 | 3,385 | 3,403 |
| SHAREHOLDERS'
EQUITY | | | | |
| Preferred
shares | 1,670 | 1,670 | 1,670 | 1,670 |
| Common
shareholders' equity | | | | |
| Common
shares | 16,765 | 16,757 | 16,753 | 16,749 |
| Contributed
surplus | 1,052 | 1,043 | 1,045 | 1,037 |
| Deficit | (5,563) | (5,368) | (5,645) | (5,837) |
| Currency
translation adjustment | (45) | (31) | (31) | (46) |
| Total common
shareholders' equity | 12,209 | 12,401 | 12,122 | 11,903 |
| Total shareholders'
equity | 13,879 | 14,071 | 13,792 | 13,573 |
| Total liabilities
and shareholders' equity | 39,702 | 39,328 | 40,049 | 39,420 |
| Number of common
shares outstanding | 924.9 | 924.5 | 924.2 | 924.0 |

| Key
ratios — Net
debt : Total Capitalization | 42.1% | 42.8% | 43.3% | 44.0% |
| --- | --- | --- | --- | --- |
| Net
debt : Trailing 12 month EBITDA | 1.61 | 1.72 | 1.76 | 1.80 |
| EBITDA
: Interest (trailing 12 month) | 7.40 | 7.24 | 6.95 | 6.71 |

BCE Inc. Supplementary Financial Information - Third Quarter 2004 Page 6

BCE Consolidated Consolidated Cash Flow Data

							YTD		YTD
	Q3		Q3				September		September
($ millions,
except where otherwise indicated)	2004		2003		$
change		2004		2003		$
change
Cash
flows from operating activities
Earnings
from continuing operations	102		453		(351	)	1,131		1,385		(254	)
Adjustments
to reconcile earnings from continuing
operations
to cash flows from operating activities:
Amortization
expense	769		801		(32	)	2,305		2,325		(20	)
Net
benefit plans cost	61		44		17		189		129		60
Restructuring
and other items (non-cash portion)	1,149		(4	)	1,153		1,164		(4	)	1,168
Net
gains on investments	(325	)	-		(325	)	(331	)	-		(331	)
Future
income taxes	(183	)	134		(317	)	(96	)	211		(307	)
Non-controlling
interest	47		45		2		134		144		(10	)
Contributions
to employee pension plans	(32	)	(46	)	14		(88	)	(73	)	(15	)
Other
employee future benefit plan payments	(13	)	(22	)	9		(59	)	(64	)	5
Other	(27	)	26		(53	)	(3	)	(10	)	7
Change
in non-cash working capital	280		387		(107	)	(134	)	327		(461	)
	1,828		1,818		10		4,212		4,370		(158	)
Capital
expenditures	(811	)	(791	)	(20	)	(2,318	)	(2,088	)	(230	)
Other
investing items	(2	)	155		(157	)	133		69		64
Cash
preferred dividends	(21	)	(14	)	(7	)	(64	)	(39	)	(25	)
Cash
dividends paid by subsidiaries to non-controlling interest	(44	)	(38	)	(6	)	(133	)	(137	)	4
Free
Cash Flow from operations, before common dividends (2)	950		1,130		(180	)	1,830		2,175		(345	)
Cash
common dividends	(277	)	(259	)	(18	)	(831	)	(770	)	(61	)
Free
Cash Flow from operations, after common dividends (2)	673		871		(198	)	999		1,405		(406	)
Business
acquisitions	(646	)	(3	)	(643	)	(952	)	(73	)	(879	)
Business
dispositions	4		55		(51	)	20		55		(35	)
Decrease
in investments accounted for under the cost and equity methods	695		1		694		693		7		686
Free
Cash Flow after investments and divestitures	726		924		(198	)	760		1,394		(634	)
Other
financing activities
Increase
(decrease) in notes payable and bank advances	173		(73	)	246		123		(242	)	365
Issue
of long-term debt	10		17		(7	)	1,410		1,881		(471	)
Repayment
of long-term debt	(98	)	(123	)	25		(1,750	)	(1,940	)	190
Issue
of common shares	8		5		3		16		14		2
Issue
of preferred shares	-		-		-		-		510		(510	)
Redemption
of preferred shares	-		-		-		-		(357	)	357
Issue
of equity securities by subsidiaries to non-controlling interest	-		24		(24)		7		113		(106	)
Redemption
of equity securities by subsidiaries from non-controlling interest	(4	)	(39	)	35		(64	)	(74	)	10
Other	(18	)	56		(74	)	(34	)	(5	)	(29	)
	71		(133	)	204		(292	)	(100	)	(192	)
Cash provided by (used
in) continuing operations	797		791		6		468		1,294		(826	)
Cash provided by (used
in) discontinued operations	12		30		(18	)	196		17		179
Net increase (decrease)
in cash and cash equivalents	809		821		(12	)	664		1,311		(647	)
Cash and cash equivalents
at beginning of period	577		796		(219	)	722		306		416
Cash and cash
equivalents at end of period	1,386		1,617		(231	)	1,386		1,617		(231	)
Consists
of:
Cash
and cash equivalents of continuing operations	1,386		1,476		(90	)	1,386		1,476		(90	)
Cash
and cash equivalents of discontinued operations	-		141		(141	)	-		141		(141	)
Total	1,386		1,617		(231	)	1,386		1,617		(231	)

| Other
information — Capital
expenditures as a percentage of revenues | 17.0% | 17.1% | 0.1 pts | 16.3% | 15.0% | (1.3)
pts |
| --- | --- | --- | --- | --- | --- | --- |
| Cash flow per share (5) | $ 1.10 | $ 1.11 | $ (0.01) | $ 2.05 | $ 2.48 | $ (0.43) |
| Annualized cash flow
yield (6) | 15.1% | 16.8% | (1.7) pts | 9.7% | 10.8% | (1.1)
pts |
| Common dividend payout | 337.8% | 58.1% | 279.7 pts | 75.1% | 56.7% | 18.4
pts |

BCE Inc. Supplementary Financial Information - Third Quarter 2004 Page 7

BCE Consolidated Consolidated Cash Flow Data — Historical Trend

| ($ millions,
except where otherwise indicated) | | | Q3
04 | | Q2
04 | | Q1
04 | | Total 2003 | | Q4
03 | | Q3
03 | | Q2
03 | | Q1
03 | |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| Cash
flows from operating activities | | | | | | | | | | | | | | | | | | |
| Earnings
from continuing operations | 1,131 | | 102 | | 544 | | 485 | | 1,871 | | 486 | | 453 | | 466 | | 466 | |
| Adjustments to reconcile earnings from continuing operations to cash flows from operating activities: | | | | | | | | | | | | | | | | | | |
| Amortization
expense | 2,305 | | 769 | | 769 | | 767 | | 3,100 | | 775 | | 801 | | 774 | | 750 | |
| Net
benefit plans cost | 189 | | 61 | | 65 | | 63 | | 175 | | 46 | | 44 | | 43 | | 42 | |
| Restructuring
and other items (non-cash portion) | 1,164 | | 1,149 | | 13 | | 2 | | 6 | | 10 | | (4 | ) | - | | - | |
| Net
gains on investments | (331 | ) | (325 | ) | (1 | ) | (5 | ) | (68 | ) | (68 | ) | - | | - | | - | |
| Future
income taxes | (96 | ) | (183 | ) | 33 | | 54 | | 418 | | 207 | | 134 | | 99 | | (22 | ) |
| Non-controlling
interest | 134 | | 47 | | 39 | | 48 | | 201 | | 57 | | 45 | | 57 | | 42 | |
| Contributions
to employee pension plans | (88 | ) | (32 | ) | (27 | ) | (29 | ) | (160 | ) | (87 | ) | (46 | ) | (21 | ) | (6 | ) |
| Other
employee future benefit plan payments | (59 | ) | (13 | ) | (22 | ) | (24 | ) | (87 | ) | (23 | ) | (22 | ) | (21 | ) | (21 | ) |
| Other | (3 | ) | (27 | ) | (20 | ) | 44 | | (60 | ) | (50 | ) | 26 | | (85 | ) | 49 | |
| Change
in non-cash working capital | (134 | ) | 280 | | (269 | ) | (145 | ) | 572 | | 245 | | 387 | | 75 | | (135 | ) |
| | 4,212 | | 1,828 | | 1,124 | | 1,260 | | 5,968 | | 1,598 | | 1,818 | | 1,387 | | 1,165 | |
| Capital
expenditures | ( 2,318 | ) | ( 811 | ) | (826 | ) | (681 | ) | (3,167 | ) | (1,079 | ) | (791 | ) | (706 | ) | (591 | ) |
| Other
investing items | 133 | | (2 | ) | 116 | | 19 | | 62 | | (7 | ) | 155 | | (44 | ) | (42 | ) |
| Cash
preferred dividends | (64 | ) | (21 | ) | (21 | ) | (22 | ) | (61 | ) | (22 | ) | (14 | ) | (14 | ) | (11 | ) |
| Cash
dividends paid by subsidiaries to non-controlling interest | ( 133 | ) | (44 | ) | (47 | ) | (42 | ) | (184 | ) | (47 | ) | (38 | ) | (55 | ) | (44 | ) |
| Free
Cash Flow from operations, before common dividends (2) | 1,830 | | 950 | | 346 | | 534 | | 2,618 | | 443 | | 1,130 | | 568 | | 477 | |
| Cash
common dividends | (831 | ) | (277 | ) | (277 | ) | (277 | ) | (1,029 | ) | (259 | ) | (259 | ) | (254 | ) | (257 | ) |
| Free
Cash Flow from operations, after common dividends (2) | 999 | | 673 | | 69 | | 257 | | 1,589 | | 184 | | 871 | | 314 | | 220 | |
| Business
acquisitions | (952 | ) | (646 | ) | (247 | ) | (59 | ) | (115 | ) | (42 | ) | (3 | ) | (7 | ) | (63 | ) |
| Business
dispositions | 20 | | 4 | | - | | 16 | | 55 | | - | | 55 | | - | | - | |
| Decrease
(increase) in investments accounted for under the cost and equity methods | 693 | | 695 | | (8 | ) | 6 | | 163 | | 156 | | 1 | | (1 | ) | 7 | |
| Free
Cash Flow after investments and divestitures | 760 | | 726 | | (186 | ) | 220 | | 1,692 | | 298 | | 924 | | 306 | | 164 | |
| Other
financing activities | | | | | | | | | | | | | | | | | | |
| Increase
(decrease) in notes payable and bank advances | 123 | | 173 | | (69 | ) | 19 | | (295 | ) | (53 | ) | (73 | ) | (55 | ) | (114 | ) |
| Issue
of long-term debt | 1,410 | | 10 | | 74 | | 1,326 | | 1,986 | | 105 | | 17 | | 72 | | 1,792 | |
| Repayment
of long-term debt | (1,750 | ) | (98 | ) | (718 | ) | (934 | ) | (3,472 | ) | (1,532 | ) | (123 | ) | (1,457 | ) | (360 | ) |
| Issue
of common shares | 16 | | 8 | | 4 | | 4 | | 19 | | 5 | | 5 | | 4 | | 5 | |
| Issue
of preferred shares | - | | - | | - | | - | | 510 | | - | | - | | - | | 510 | |
| Redemption
of preferred shares | - | | - | | - | | - | | (357 | ) | - | | - | | - | | (357 | ) |
| Issue
of equity securities and convertible debentures by subsidiaries to non-controlling
interest | 7 | | - | | - | | 7 | | 132 | | 19 | | 24 | | 16 | | 73 | |
| Redemption
of equity securities by subsidiaries from non-controlling interest | (64 | ) | (4 | ) | (17 | ) | (43 | ) | (108 | ) | (34 | ) | (39 | ) | (16 | ) | (19 | ) |
| Other | ( 34 | ) | ( 18 | ) | 32 | | (48 | ) | (46 | ) | (41 | ) | 56 | | (59 | ) | (2 | ) |
| | (292 | ) | 71 | | (694 | ) | 331 | | (1,631 | ) | (1,531 | ) | (133 | ) | (1,495 | ) | 1,528 | |
| Cash provided
by (used in) continuing operations | 468 | | 797 | | (880 | ) | 551 | | 61 | | (1,233 | ) | 791 | | (1,189 | ) | 1,692 | |
| Cash provided
by (used in) discontinued operations | 196 | | 12 | | (54 | ) | 238 | | 355 | | 338 | | 30 | | (3 | ) | (10 | ) |
| Net increase
(decrease) in cash and cash equivalents | 664 | | 809 | | (934 | ) | 789 | | 416 | | (895 | ) | 821 | | (1,192 | ) | 1,682 | |
| Cash and
cash equivalents at beginning of period | 722 | | 577 | | 1,511 | | 722 | | 306 | | 1,617 | | 796 | | 1,988 | | 306 | |
| Cash
and cash equivalents at end of period | 1,386 | | 1,386 | | 577 | | 1,511 | | 722 | | 722 | | 1,617 | | 796 | | 1,988 | |
| Consists
of: | | | | | | | | | | | | | | | | | | |
| Cash
and cash equivalents of continuing operations | 1,386 | | 1,386 | | 577 | | 1,135 | | 585 | | 585 | | 1,476 | | 684 | | 1,855 | |
| Cash
and cash equivalents of discontinued operations | - | | - | | - | | 376 | | 137 | | 137 | | 141 | | 112 | | 133 | |
| Total | 1,386 | | 1,386 | | 577 | | 1,511 | | 722 | | 722 | | 1,617 | | 796 | | 1,988 | |
| Other
information | | | | | | | | | | | | | | | | | | |
| Capital
expenditures as a percentage of revenues | 16.3 % | | 17.0 % | | 17.3% | | 14.7% | | 16.9% | | 22.4% | | 17.1% | | 15.1% | | 12.8% | |
| Cash flow
per share (5) | $ 2.05 | $ | 1.10 | $ | 0.32 | $ | 0.63 | $ | 3.04 | $ | 0.56 | $ | 1.11 | $ | 0.74 | $ | 0.63 | |
| Annualized
cash flow yield (6) | 9.7% | | 15.1% | | 5.6% | | 8.4% | | 9.8% | | 6.8% | | 16.8% | | 8.0% | | 7.6% | |
| Common
dividend payout | 75.1 % | | 337.8 % | | 50.0% | | 58.9% | | 59.0% | | 67.1% | | 58.1% | | 55.1% | | 57.0% | |

BCE Inc. Supplementary Financial Information - Third Quarter 2004 Page 8

Proportionate Net Debt, Preferreds and EBITDA

BCE Corporate and Bell Canada Net debt and preferreds

| At September
30, 2004 ($ millions, except where otherwise indicated) — Bank indebtedness
/ (cash and cash equivalents) | Bell
Canada (excl. Aliant) — (92 | ) | Aliant — (407 | Bell Canada Statutory — (499 | ) | Inter-company eliminations — - | | Total Bell Canada — (499 | BCE
Inc. Corporate — (684 | ) |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| Long-term
debt | 8,473 | | 889 | 9,362 | | (397 | ) | 8,965 | 2,000 | |
| Debt due
within one year | 1,556 | | 102 | 1,658 | | (181 | ) | 1,477 | - | |
| Long-term
note receivable from BCH | (498 | ) | - | (498 | ) | 498 | | - | - | |
| PPA fair
value increment (7) | - | | - | - | | - | | 124 | - | |
| Net
debt | 9,439 | | 584 | 10,023 | | (80 | ) | 10,067 | 1,316 | |
| Preferred
shares - Bell Canada (8) | 1,100 | | - | 1,100 | | - | | 1,100 | - | |
| Preferred
shares - Aliant (8) | - | | 172 | 172 | | - | | 172 | - | |
| Perpetual
Preferred shares - BCE | - | | - | - | | - | | - | 1,670 | |
| Nortel
common shares at market | - | | - | - | | - | | - | (60 | ) |
| Net
debt and preferreds | 10,539 | | 756 | 11,295 | | (80 | ) | 11,339 | 2,926 | |

Proportionate net debt and preferreds, Trailing EBITDA

| For
the quarter ended September 30, 2004 ($ millions, except
where otherwise indicated) | % owned by BCE | Propor- tionate net debt and preferreds | | TOTAL
EBITDA | | | | | | | | | | PROPORTIONATE
EBITDA | | | | | | | | | |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| | | | | Q3
04 | | Q2
04 | | Q1
04 | | Q4
03 | | Trailing | | Q3
04 | | Q2
04 | | Q1
04 | | Q4
03 | | Trailing | |
| Bell Canada
(excluding Aliant) | 100% | 10,583 | * | 1,669 | | 1,612 | | 1,549 | | 1,514 | | 6,344 | | 1,669 | | 1,612 | | 1,549 | | 1,514 | | 6,344 | |
| Aliant | 53.5% | 404 | | 187 | | 209 | | 206 | | 217 | | 819 | | 100 | | 112 | | 110 | | 116 | | 438 | |
| Total
Bell Canada Consolidated | | 10,987 | | 1,856 | | 1,821 | | 1,755 | | 1,731 | | 7,163 | | 1,769 | | 1,724 | | 1,659 | | 1,630 | | 6,782 | |
| Other
BCE | | | | | | | | | | | | | | | | | | | | | | | |
| Bell Globemedia | 68.5% | 398 | | 43 | | 93 | | 56 | | 83 | | 275 | | 22 | | 54 | | 34 | | 50 | | 160 | |
| Telesat | 100% | 195 | | 60 | | 54 | | 54 | | 55 | | 223 | | 60 | | 54 | | 54 | | 55 | | 223 | |
| CGI | 28.9% | 83 | | 38 | | 37 | | 31 | | 32 | | 138 | | 38 | | 37 | | 31 | | 32 | | 138 | |
| Corporate
and other | 100% | 2,940 | | (35 | ) | (31 | ) | (32 | ) | (35 | ) | (133 | ) | (35 | ) | (31 | ) | (32 | ) | (35 | ) | (133 | ) |
| Total Other
BCE | 100% | 3,616 | | 106 | | 153 | | 109 | | 135 | | 503 | | 85 | | 114 | | 87 | | 102 | | 388 | |
| Inter-segment
eliminations | | | | (26 | ) | (21 | ) | (20 | ) | (19 | ) | (86 | ) | (26 | ) | (21 | ) | (20 | ) | (19 | ) | (86 | ) |
| Total | | 14,603 | | 1,936 | | 1,953 | | 1,844 | | 1,847 | | 7,580 | | 1,828 | | 1,817 | | 1,726 | | 1,713 | | 7,084 | |

• Calculated the following way: Bell Canada (excl. Aliant) net debt and preferred of $10,539 million minus $80 million of inter-company eliminations plus $124 million PPA fair value increment.

BCE inc. Supplementary Financial Information - Third Quarter 2004 Page 9

Bell Canada Consolidated (1) Operational Data

| ($
millions, except where otherwise indicated) | Q3 2004 | | Q3 2003 | | $
change | | %
change | | YTD September 2004 | | YTD September 2003 | | $ change | | %
change | |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| Revenues | | | | | | | | | | | | | | | | |
| Local and
access | 1,395 | | 1,410 | | (15 | ) | (1.1 | %) | 4,175 | | 4,200 | | (25 | ) | (0.6 | %) |
| Long distance | 589 | | 641 | | (52 | ) | (8.1 | %) | 1,767 | | 1,942 | | (175 | ) | (9.0 | %) |
| Wireless | 727 | | 645 | | 82 | | 12.7 | % | 2,076 | | 1,803 | | 273 | | 15.1 | % |
| Data | 915 | | 906 | | 9 | | 1.0 | % | 2,677 | | 2,762 | | (85 | ) | (3.1 | %) |
| Video | 213 | | 192 | | 21 | | 10.9 | % | 631 | | 559 | | 72 | | 12.9 | % |
| Terminal
sales and other | 367 | | 361 | | 6 | | 1.7 | % | 1,158 | | 1,102 | | 56 | | 5.1 | % |
| Total
operating revenues | 4,206 | | 4,155 | | 51 | | 1.2 | % | 12,484 | | 12,368 | | 116 | | 0.9 | % |
| Operating
expenses | (2,350 | ) | (2,338 | ) | (12 | ) | (0.5 | %) | (7,052 | ) | (7,098 | ) | 46 | | 0.6 | % |
| EBITDA | 1,856 | | 1,817 | | 39 | | 2.1 | % | 5,432 | | 5,270 | | 162 | | 3.1 | % |
| EBITDA
margin (%) | 44.1 | % | 43.7 | % | | | 0.4
pts | | 43.5 | % | 42.6 | % | | | 0.9
pts | |
| Amortization
expense | (734 | ) | (758 | ) | 24 | | 3.2 | % | (2,199 | ) | (2,228 | ) | 29 | | 1.3 | % |
| Net benefit
plans cost | (55 | ) | (46 | ) | (9 | ) | (19.6 | %) | (173 | ) | (135 | ) | (38 | ) | (28.1 | %) |
| Restructuring
and other items | (1,080 | ) | ( 1 | ) | (1,079 | ) | n.m. | | (1,096 | ) | ( 1 | ) | (1,095 | ) | n.m. | |
| Operating
income (loss) | (13 | ) | 1,012 | | (1,025 | ) | n.m. | | 1,964 | | 2,906 | | (942 | ) | (32.4 | %) |
| Other income | 114 | | 3 | | 111 | | n.m. | | 163 | | 82 | | 81 | | 98.8 | % |
| Interest
expense | (215 | ) | (239 | ) | 24 | | 10.0 | % | (651 | ) | (714 | ) | 63 | | 8.8 | % |
| Pre-tax
earnings (loss) from continuing operations | (114 | ) | 776 | | (890 | ) | n.m. | | 1,476 | | 2,274 | | (798 | ) | (35.1 | %) |
| Income
taxes | 75 | | (196 | ) | 271 | | n.m. | | (366 | ) | (578 | ) | 212 | | 36.7 | % |
| Non-controlling
interest | 2 | | (13 | ) | 15 | | n.m. | | 1 | | (54 | ) | 55 | | n.m. | |
| Earnings
(loss) from continuing operations | (37 | ) | 567 | | (604 | ) | n.m. | | 1,111 | | 1,642 | | (531 | ) | (32.3 | %) |
| Discontinued
operations | - | | - | | - | | n.m. | | - | | 6 | | (6 | ) | n.m. | |
| Net
earnings (loss) | (37 | ) | 567 | | (604 | ) | n.m. | | 1,111 | | 1,648 | | (537 | ) | (32.6 | %) |
| Dividends
on preferred shares | (16 | ) | (17 | ) | 1 | | 5.9 | % | (49 | ) | (49 | ) | - | | 0.0 | % |
| Interest
on equity-settled notes | - | | - | | - | | n.m. | | - | | (25 | ) | 25 | | n.m. | |
| Net
earnings (loss) applicable to common shares | (53 | ) | 550 | | (603 | ) | n.m. | | 1,062 | | 1,574 | | (512 | ) | (32.5 | %) |
| Other
information | | | | | | | | | | | | | | | | |
| Cash
flow information | | | | | | | | | | | | | | | | |
| Free
Cash Flow (FCF) | | | | | | | | | | | | | | | | |
| Cash from
operating activities | 1,756 | | 1,728 | | 28 | | 1.6 | % | 4,040 | | 3,819 | | 221 | | 5.8 | % |
| Capital
expenditures | (736 | ) | (708 | ) | (28 | ) | (4.0 | %) | (2,041 | ) | (1,901 | ) | (140 | ) | (7.4 | %) |
| Dividends
and distributions | (445 | ) | (465 | ) | 20 | | 4.3 | % | (1,385 | ) | (1,558 | ) | 173 | | 11.1 | % |
| Interest
on equity-settled notes | - | | - | | - | | n.m. | | - | | (47 | ) | 47 | | n.m. | |
| Other investing
items | 1 | | 52 | | (51 | ) | (98.1 | %) | (7 | ) | 44 | | (51 | ) | n.m. | |
| Total | 576 | | 607 | | (31 | ) | (5.1 | %) | 607 | | 357 | | 250 | | (70.0 | %) |
| Capital
expenditures as a percentage of revenues (%) | 17.5 | % | 17.0 | % | | | (0.5) | pts | 16.3 | % | 15.4 | % | | | (0.9) | pts |
| Balance
Sheet Information | September
30 | | December
31 | | | | | | | | | | | | | |
| | 2004 | | 2003 | | | | | | | | | | | | | |
| Capital
Structure Net Debt | | | | | | | | | | | | | | | | |
| Long-term
debt | 9,362 | | 10,024 | | | | | | | | | | | | | |
| Debt due
within one year | 1,658 | | 1,165 | | | | | | | | | | | | | |
| Less: Cash
and cash equivalents | (499 | ) | (398 | ) | | | | | | | | | | | | |
| Total
Net Debt | 10,521 | | 10,791 | | | | | | | | | | | | | |
| Non-controlling
interest | 1,230 | | 1,627 | | | | | | | | | | | | | |
| Total shareholders'
equity | 9,150 | | 9,520 | | | | | | | | | | | | | |
| Total
Capitalization | 20,901 | | 21,938 | | | | | | | | | | | | | |
| Net Debt:
Total Capitalization | 50.3 | % | 49.2 | % | | | | | | | | | | | | |
| Net Debt:
Trailing 12 month EBITDA | 1.47 | | 1.54 | | | | | | | | | | | | | |
| EBITDA
: Interest (trailing 12 month) | 8.12 | | 7.41 | | | | | | | | | | | | | |

BCE Inc. Supplementary Financial Information - Third Quarter 2004 Page 10

Bell Canada Consolidated (1) Operational Data - Historical Trend

| ($ millions,
except where otherwise indicated) | YTD 2004 | | Q3
04 | | Q2
04 | | Q1
04 | | Total 2003 | | Q4
03 | | Q3
03 | | Q2
03 | | Q1
03 | |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| Revenues | | | | | | | | | | | | | | | | | | |
| Local and
access | 4,175 | | 1,395 | | 1,401 | | 1,379 | | 5,601 | | 1,401 | | 1,410 | | 1,404 | | 1,386 | |
| Long distance | 1,767 | | 589 | | 572 | | 606 | | 2,544 | | 602 | | 641 | | 615 | | 686 | |
| Wireless | 2,076 | | 727 | | 698 | | 651 | | 2,461 | | 658 | | 645 | | 607 | | 551 | |
| Data | 2,677 | | 915 | | 870 | | 892 | | 3,717 | | 955 | | 906 | | 936 | | 920 | |
| Video | 631 | | 213 | | 211 | | 207 | | 759 | | 200 | | 192 | | 190 | | 177 | |
| Terminal
sales and other | 1,158 | | 367 | | 420 | | 371 | | 1,532 | | 430 | | 361 | | 378 | | 363 | |
| Total
operating revenues | 12,484 | | 4,206 | | 4,172 | | 4,106 | | 16,614 | | 4,246 | | 4,155 | | 4,130 | | 4,083 | |
| Operating
expenses | (7,052 | ) | (2,350 | ) | (2,351 | ) | (2,351 | ) | (9,613 | ) | (2,515 | ) | (2,338 | ) | (2,370 | ) | (2,390 | ) |
| EBITDA | 5,432 | | 1,856 | | 1,821 | | 1,755 | | 7,001 | | 1,731 | | 1,817 | | 1,760 | | 1,693 | |
| EBITDA
margin (%) | 43.5 | % | 44.1 | % | 43.6 | % | 42.7 | % | 42.1 | % | 40.8 | % | 43.7 | % | 42.6 | % | 41.5 | % |
| Amortization
expense | (2,199 | ) | (734 | ) | (733 | ) | (732 | ) | (2,970 | ) | (742 | ) | (758 | ) | (747 | ) | (723 | ) |
| Net benefit
plans cost | (173 | ) | (55 | ) | (58 | ) | (60 | ) | (181 | ) | (46 | ) | (46 | ) | (45 | ) | (44 | ) |
| Restructuring
and other items | (1,096 | ) | (1,080 | ) | (13 | ) | (3 | ) | (14 | ) | (13 | ) | (1 | ) | - | | - | |
| Operating
income (loss) | 1,964 | | (13 | ) | 1,017 | | 960 | | 3,836 | | 930 | | 1,012 | | 968 | | 926 | |
| Other income | 163 | | 114 | | 19 | | 30 | | 217 | | 135 | | 3 | | 35 | | 44 | |
| Interest
expense | (651 | ) | (215 | ) | (216 | ) | (220 | ) | (945 | ) | (231 | ) | (239 | ) | (232 | ) | (243 | ) |
| Pre-tax
earnings (loss) from continuing operations | 1,476 | | (114 | ) | 820 | | 770 | | 3,108 | | 834 | | 776 | | 771 | | 727 | |
| Income
taxes | (366 | ) | 75 | | (245 | ) | (196 | ) | (787 | ) | (209 | ) | (196 | ) | (199 | ) | (183 | ) |
| Non-controlling
interest | 1 | | 2 | | 9 | | (10 | ) | (53 | ) | 1 | | (13 | ) | (22 | ) | (19 | ) |
| Earnings
(loss) from continuing operations | 1,111 | | (37 | ) | 584 | | 564 | | 2,268 | | 626 | | 567 | | 550 | | 525 | |
| Discontinued
operations | - | | - | | - | | - | | 59 | | 53 | | - | | 5 | | 1 | |
| Net
earnings (loss) | 1,111 | | (37 | ) | 584 | | 564 | | 2,327 | | 679 | | 567 | | 555 | | 526 | |
| Dividends
on preferred shares | (49 | ) | (16 | ) | (17 | ) | (16 | ) | (58 | ) | (9 | ) | (17 | ) | (16 | ) | (16 | ) |
| Interest
on equity-settled notes | - | | - | | - | | - | | (25 | ) | - | | - | | (10 | ) | (15 | ) |
| Net
earnings (loss) applicable to common shares | 1,062 | | (53 | ) | 567 | | 548 | | 2,244 | | 670 | | 550 | | 529 | | 495 | |
| Other
information | | | | | | | | | | | | | | | | | | |
| Cash
flow information | | | | | | | | | | | | | | | | | | |
| Free
Cash Flow (FCF) | | | | | | | | | | | | | | | | | | |
| Cash from
operating activities | 4,040 | | 1,756 | | 1,089 | | 1,195 | | 5,366 | | 1,547 | | 1,728 | | 1,229 | | 862 | |
| Capital
expenditures | (2,041 | ) | (736 | ) | (715 | ) | (590 | ) | (2,892 | ) | (991 | ) | (708 | ) | (659 | ) | (534 | ) |
| Dividends
and distributions | (1,385 | ) | (445 | ) | (437 | ) | (503 | ) | (2,081 | ) | (523 | ) | (465 | ) | (704 | ) | (389 | ) |
| Interest
on equity-settled notes | - | | - | | - | | - | | (47 | ) | - | | - | | (24 | ) | (23 | ) |
| Other investing
items | (7 | ) | 1 | | (1 | ) | (7 | ) | 47 | | 3 | | 52 | | (5 | ) | (3 | ) |
| Total | 607 | | 576 | | (64 | ) | 95 | | 393 | | 36 | | 607 | | (163 | ) | (87 | ) |
| Capital
expenditures as a percentage of revenues (%) | 16.3 | % | 17.5 | % | 17.1 | % | 14.4 | % | 17.4 | % | 23.3 | % | 17.0 | % | 16.0 | % | 13.1 | % |
| Balance
Sheet Information | | | September
30 | | June
30 | | March
31 | | December 31 | | | | | | | | | |
| Capital
Structure | | | 2004 | | 2004 | | 2004 | | 2003 | | | | | | | | | |
| Net
Debt | | | | | | | | | | | | | | | | | | |
| Long-term
debt | | | 9,362 | | 9,674 | | 10,331 | | 10,024 | | | | | | | | | |
| Debt due
within one year | | | 1,658 | | 1,269 | | 1,111 | | 1,165 | | | | | | | | | |
| Less: Cash
and cash equivalents | | | (499 | ) | (422 | ) | (1,112 | ) | (398 | ) | | | | | | | | |
| Total
Net Debt | | | 1 0 ,521 | | 10,521 | | 10,330 | | 10,791 | | | | | | | | | |
| Non-controlling
interest | | | 1,23 0 | | 1,559 | | 1,608 | | 1,627 | | | | | | | | | |
| Total shareholders'
equity | | | 9,15 0 | | 9,851 | | 9,682 | | 9,520 | | | | | | | | | |
| Total
Capitalization | | | 2 0 ,9 0 1 | | 21,931 | | 21,620 | | 21,938 | | | | | | | | | |
| Net Debt:
Total Capitalization | | | 5 0 .3 | % | 48.0 | % | 47.8 | % | 49.2 | % | | | | | | | | |
| Net Debt
: Trailing 12 month EBITDA | | | 1.47 | | 1.48 | | 1.46 | | 1.54 | | | | | | | | | |
| EBITDA
: Interest (trailing 12 month) | | | 8.12 | | 7.86 | | 7.66 | | 7.41 | | | | | | | | | |

BCE Inc. Supplementary Financial Information - Third Quarter 2004 Page 11

Bell Canada Consolidated (1) Statistical Data

| | Q3 2004 | | Q3
2003 | | %
change | | YTD September 2004 | | YTD September 2003 | | %
change | |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| Wireline | | | | | | | | | | | | |
| Local | | | | | | | | | | | | |
| Network
access services (k) | | | | | | | | | | | | |
| Residential | | | | | | | 8,427 | | 8,539 | | (1.3 | %) |
| Business | | | | | | | 4,535 | | 4,549 | | (0.3 | %) |
| Total | | | | | | | 12,962 | | 13,088 | | (1.0 | %) |
| SmartTouch
feature revenues ($M) | 234 | | 239 | | (2.1 | %) | 7 0 6 | | 715 | | (1.3 | %) |
| Long
Distance (LD) | | | | | | | | | | | | |
| Conversation
minutes (M) | 4,435 | | 4,664 | | (4.9 | %) | 13,511 | | 14,447 | | (6.5 | %) |
| Average
revenue per minute ($) | 0.120 | | 0.128 | | (6.3 | %) | 0.119 | | 0.124 | | (4.0 | %) |
| Data | | | | | | | | | | | | |
| Equivalent
access lines (9) (k) - Ontario and Quebec | | | | | | | | | | | | |
| Digital
equivalent access lines (k) | | | | | | | 4,197 | | 3,771 | | 11.3 | % |
| Internet
subscribers (10) (k) | | | | | | | | | | | | |
| DSL High
Speed Internet net activations (k) | 96 | | 1 0 4 | | (7.7 | %) | 284 | | 281 | | 1.1 | % |
| DSL High
Speed Internet subscribers (k) | | | | | | | 1,766 | | 1,391 | | 27.0 | % |
| Dial-up
Internet subscribers (k) | | | | | | | 775 | | 892 | | (13.1 | %) |
| | | | | | | | 2,541 | | 2,283 | | 11.3 | % |
| Wireless | | | | | | | | | | | | |
| Cellular
& PCS Net activations (k) | | | | | | | | | | | | |
| Pre-paid | 14 | | 23 | | (39.1 | %) | 54 | | 68 | | (2 0 .6 | %) |
| Post-paid | 95 | | 101 | | (5.9 | %) | 242 | | 257 | | (5.8 | %) |
| | 1 0 9 | | 124 | | (12.1 | %) | 296 | | 325 | | (8.9 | %) |
| Cellular
& PCS subscribers (k) | | | | | | | | | | | | |
| Pre-paid | | | | | | | 1,113 | | 1,026 | | 8.5 | % |
| Post-paid | | | | | | | 3,595 | | 3,197 | | 12.4 | % |
| | | | | | | | 4,708 | | 4,223 | | 11.5 | % |
| Average
revenue per unit (ARPU) ($/month) | 50 | | 5 0 | | 0.0 | % | 49 | | 47 | | 4.3 | % |
| Pre-paid | 12 | | 13 | | (7.7 | %) | 12 | | 12 | | 0.0 | % |
| Post-paid | 63 | | 62 | | 1.6 | % | 61 | | 59 | | 3.4 | % |
| Churn
(%) (average per month) | 1.2 | % | 1.4 | % | 0.2 | pts | 1.3 | % | 1.4 | % | 0.1 | pts |
| Pre-paid | 1.9 | % | 1.8 | % | (0.1) | pts | 1.9 | % | 1.8 | % | (0.1) | pts |
| Post-paid | 1.0 | % | 1.3 | % | 0.3 | pts | 1.1 | % | 1.3 | % | 0.2 | pts |
| Usage
per subscriber (min/month) | n/a | | 231 | | n/a | | n/a | | 224 | | n/a | |
| Cost
of acquisition (COA) (11) ($/sub) | 381 | | 425 | | 10.4 | % | 415 | | 418 | | 0.7 | % |
| Wireless
EBITDA ($ millions) | 334 | | 251 | | 33.1 | % | 913 | | 689 | | 32.5 | % |
| Wireless
EBITDA margin (12) | 45.4 | % | 38.0 | % | 7.4 | pts | 43.4 | % | 37.2 | % | 6.2 | pts |
| Wireless
capital expenditures ($ millions) | 95 | | 88 | | (8.0 | %) | 237 | | 239 | | 0.8 | % |
| Paging
subscribers (k) | | | | | | | 449 | | 549 | | (18.2 | %) |
| Paging
average revenue per unit ($/month) | 10 | | 10 | | 0.0 | % | 10 | | 10 | | 0.0 | % |
| Video
(DTH and VDSL) | | | | | | | | | | | | |
| Total
subscribers (k) | | | | | | | 1,460 | | 1,352 | | 8.0 | % |
| Net
subscriber activations (k) | 33 | | 17 | | 94.1 | % | 73 | | 48 | | 52.1 | % |
| ARPU
($/month) | 48 | | 47 | | 2.1 | % | 48 | | 46 | | 4.3 | % |
| COA
($/sub) | 548 | | 5 0 7 | | (8.1 | %) | 586 | | 512 | | (14.5 | %) |
| Video
EBITDA ($ millions) | (16 | ) | (9 | ) | (77.8 | %) | (15 | ) | (24 | ) | 37.5 | % |
| Churn
(%) (average per month) | 1.1 | % | 1.4 | % | 0.3 | pts | 1.0 | % | 1.2 | % | 0.2 | pts |

BCE Inc Supplementary Financial Information - Third Quarter 2004 Page 12

Bell Canada Consolidated (1) Statistical Data — Historical Trend

| | YTD 2004 | | Q3
04 | | Q2
04 | Q1
04 | Total
2003 | | Q4
03 | | Q3
03 | | Q2
03 | | Q1
03 | |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| Wireline | | | | | | | | | | | | | | | | |
| Local | | | | | | | | | | | | | | | | |
| Network
access services (k) | | | | | | | | | | | | | | | | |
| Residential | | | 8,427 | | 8,390 | 8,476 | | | 8,511 | | 8,539 | | 8,504 | | 8,566 | |
| Business | | | 4,535 | | 4,548 | 4,541 | | | 4,540 | | 4,549 | | 4,564 | | 4,577 | |
| Total | | | 12,962 | | 12,938 | 13,017 | | | 13,051 | | 13,088 | | 13,068 | | 13,143 | |
| SmartTouch
feature revenues ($M) | 706 | | 234 | | 235 | 237 | 955 | | 240 | | 239 | | 239 | | 237 | |
| Long
Distance (LD) | | | | | | | | | | | | | | | | |
| Conversation
minutes (M) | 13,511 | | 4,435 | | 4,498 | 4,578 | 19,132 | | 4,685 | | 4,664 | | 4,911 | | 4,872 | |
| Average
revenue per minute ($) | 0.119 | | 0.120 | | 0.118 | 0.120 | 0.124 | | 0.122 | | 0.128 | | 0.120 | | 0.124 | |
| Data | | | | | | | | | | | | | | | | |
| Equivalent
access lines (9) (k) - Ontario and Quebec | | | | | | | | | | | | | | | | |
| Digital
equivalent access lines (k) | | | 4,197 | | 4,083 | 3,983 | | | 3,867 | | 3,771 | | 3,708 | | 3,704 | |
| Internet
subscribers (10) (k) | | | | | | | | | | | | | | | | |
| DSL High
Speed Internet net activations (k) | 284 | | 96 | | 73 | 115 | 372 | | 91 | | 104 | | 81 | | 96 | |
| DSL High
Speed Internet subscribers (k) | | | 1,766 | | 1,670 | 1,597 | | | 1,482 | | 1,391 | | 1,287 | | 1,206 | |
| Dial-up
Internet subscribers (k) | | | 775 | | 807 | 836 | | | 869 | | 892 | | 911 | | 940 | |
| | | | 2,541 | | 2,477 | 2,433 | | | 2,351 | | 2,283 | | 2,198 | | 2,146 | |
| Wireless | | | | | | | | | | | | | | | | |
| Cellular
& PCS Net activations (k) | | | | | | | | | | | | | | | | |
| Pre-paid | 54 | | 14 | | 17 | 23 | 101 | | 33 | | 23 | | 27 | | 18 | |
| Post-paid | 242 | | 95 | | 78 | 69 | 413 | | 156 | | 101 | | 104 | | 52 | |
| | 296 | | 109 | | 95 | 92 | 514 | | 189 | | 124 | | 131 | | 70 | |
| Cellular
& PCS subscribers (k) | | | | | | | | | | | | | | | | |
| Pre-paid | | | 1,113 | | 1,099 | 1,082 | | | 1,059 | | 1,026 | | 1,003 | | 976 | |
| Post-paid | | | 3,595 | | 3,500 | 3,422 | | | 3,353 | | 3,197 | | 3,096 | | 2,992 | |
| | | | 4,708 | | 4,599 | 4,504 | | | 4,412 | | 4,223 | | 4,099 | | 3,968 | |
| Average
revenue per unit (ARPU) ($/month) | 49 | | 50 | | 50 | 47 | 48 | | 50 | | 50 | | 48 | | 45 | |
| Pre-paid | 12 | | 12 | | 11 | 11 | 12 | | 12 | | 13 | | 12 | | 11 | |
| Post-paid | 61 | | 63 | | 62 | 59 | 60 | | 62 | | 62 | | 60 | | 56 | |
| Churn (%)
(average per month) | 1.3 | % | 1.2 | % | 1.3 % | 1.3 % | 1.4 | % | 1.4 | % | 1.4 | % | 1.4 | % | 1.4 | % |
| Pre-paid | 1.9 | % | 1.9 | % | 1.9 % | 1.7 % | 1.9 | % | 1.8 | % | 1.8 | % | 1.9 | % | 1.9 | % |
| Post-paid | 1.1 | % | 1.0 | % | 1.1 % | 1.1 % | 1.3 | % | 1.2 | % | 1.3 | % | 1.3 | % | 1.3 | % |
| Usage per
subscriber (min/month) | n/a | | n/a | | n / a | 223 | 228 | | 240 | | 231 | | 237 | | 203 | |
| Cost of
acquisition (COA) (11) ($/sub) | 415 | | 381 | | 413 | 455 | 426 | | 445 | | 425 | | 435 | | 387 | |
| Wireless
EBITDA ($ millions) | 913 | | 334 | | 317 | 262 | 918 | | 229 | | 251 | | 219 | | 219 | |
| Wireless
EBITDA margin (12) | 43.4 | % | 45.4 | % | 44.9 % | 39.6 % | 36.3 | % | 34.0 | % | 38.0 | % | 35.3 | % | 38.4 | % |
| Wireless
capital expenditures ($ millions) | 237 | | 95 | | 77 | 65 | 408 | | 169 | | 88 | | 81 | | 70 | |
| Paging
subscribers (k) | | | 449 | | 469 | 493 | | | 524 | | 549 | | 581 | | 606 | |
| Paging
average revenue per unit ($/month) | 10 | | 10 | | 10 | 10 | 10 | | 10 | | 10 | | 10 | | 10 | |
| Video
(DTH and VDSL) | | | | | | | | | | | | | | | | |
| Total subscribers
(k) | | | 1,460 | | 1,427 | 1,403 | | | 1,387 | | 1,352 | | 1,335 | | 1,317 | |
| Net subscriber
activations (k) | 73 | | 33 | | 24 | 16 | 83 | | 35 | | 17 | | 18 | | 13 | |
| ARPU ($/month) | 48 | | 48 | | 49 | 48 | 46 | | 48 | | 47 | | 47 | | 44 | |
| COA ($/sub) | 586 | | 548 | | 570 | 661 | 532 | | 581 | | 507 | | 533 | | 493 | |
| Video EBITDA
($ millions) | (15 | ) | (16 | ) | - | 1 | (45 | ) | (21 | ) | (9 | ) | (9 | ) | (6 | ) |
| Churn (%)
(average per month) | 1.0 | % | 1.1 | % | 1.0 % | 0.9 % | 1.1 | % | 1.0 | % | 1.4 | % | 1.1 | % | 1.0 | % |

BCE Inc. Supplementary Financial Information - Third Quarter 2004 Page 13

Accompanying Notes

| (1) | We have
reclassified some of the figures for the comparative period to make them
consistent with the current period's presentation. |
| --- | --- |
| (2) | Non-GAAP
Financial Measures |
| | EBITDA |
| | The term,
EBITDA (earnings before interest, taxes, depreciation and amortization),
does not have any standardized meaning prescribed by Canadian generally
accepted accounting principles (GAAP). It is therefore unlikely to be comparable
to similar measures presented by other companies. EBITDA is presented on
a consistent basis from period to period. |
| | We define
EBITDA as operating revenues less operating expenses, which means it represents
operating income before amortization expense, net benefit plans cost, and
restructuring and other items. |
| | We use
EBITDA, among other measures, to assess the operating performance of our
ongoing businesses without the effects of amortization expense, net benefit
plans cost, and restructuring and other items. We exclude amortization expense
and net benefit plans cost because they largely depend on the accounting
methods and assumptions a company uses, as well as non-operating factors,
such as the historical cost of capital assets and the fund performance of
a company’s pension plans. We exclude restructuring and other items
because they are transitional in nature. |
| | EBITDA
allows us to compare our operating performance on a consistent basis. We
believe that certain investors and analysts use EBITDA to measure a company’s
ability to service debt and to meet other payment obligations, or as a common
valuation measurement in the telecommunications industry. |
| | EBITDA
should not be confused with net cash flows from operating activities. The
most comparable Canadian GAAP financial measure is operating income. |
| | FREE
CASH FLOW |
| | The term,
free cash flow, does not have any standardized meaning prescribed by Canadian
GAAP. It is therefore unlikely to be comparable to similar measures presented
by other companies. Free cash flow is presented on a consistent basis from
period to period. |
| | We define
free cash flow as cash from operating activities after capital expenditures,
total dividends and other investing activities. |
| | We consider
free cash flow to be an important indicator of the financial strength and
performance of our business because it shows how much cash is available
to repay debt and to reinvest in our company. We believe that certain investors
and analysts use free cash flow when valuing a business and its underlying
assets. |
| | The most
comparable Canadian GAAP financial measure is cash from operating activities. |
| (3) | EBITDA
margin is calculated as follows: |
| | EBITDA |
| | Operating
revenues |
| (4) | Total Wireless
capital expenditures are included in the Consumer segment. |
| (5) | Cash flow
per share is calculated as follows: |
| | Cash
flow from operations less capital expenditures |
| | Average
number of common shares outstanding during the period |
| (6) | Annualized cash flow
yield is calculated as follows: |
| | Free cash
flow before common dividends |
| | Number of common shares
outstanding at end of period multiplied by share price at end of period |

BCE Inc. Supplementary Financial Information – Third Quarter 2004 Page 14

Accompanying Notes (continued)

| (7) | Reflects an increase in the total Bell Canada debt as a result of the
completion of the purchase price allocation (PPA) relating to the repurchase
of SBC’s 20% interest in Bell Canada, which resulted in an increase
in long-term debt of $165 million. This increase in long-term debt will
be applied against interest expense ($4 million in Q3 2004) over the remaining
terms of the related long-term debt. |
| --- | --- |
| (8) | At the BCE Consolidated level, 3rd Party Preferred Shares reflected
in the financial statements of subsidiaries are included in non-controlling
interest on the balance sheet. |
| (9) | Digital equivalent access lines are derived by converting low capacity
data lines (DS-3 and lower) to the equivalent number of voice grade access
lines. Broadband equivalent access lines are derived by converting high
capacity data lines (higher than DS-3) to the equivalent number of voice
grade access lines. |

| Conversion
factors | |
| --- | --- |
| DS-0 | 1 |
| Basic ISDN | 2 |
| Primary ISDN | 23 |
| DS-1, DEA | 24 |
| DS-3 | 672 |
| OC-3 | 2,016 |
| OC-12 | 8,064 |
| OC-48 | 32,256 |
| OC-192 | 129,024 |
| 10 Base T | 155 |
| 100 Base T | 1,554 |
| Gigabit E | 15,554 |

| (10) | DSL High Speed Internet subscribers include consumer, business and wholesale.
Dial-up Internet subscribers include consumer and business. |
| --- | --- |
| (11) | Includes allocation of selling costs from Bell Canada and excludes costs
of migrating from analog to digital. Cost of Acquisition (COA) per subscriber
is reflected on a consolidated basis. |
| (12) | Wireless
EBITDA margins are calculated based on total Wireless operating revenues
(i.e. external revenues as shown on pages 10 and 11 plus inter-company
revenues). |

BCE Inc. Supplementary Financial Information – Third Quarter 2004 Page 15

| Appendix
A — Reconciliation of Canadian Generally Accepted Accounting Principles |
| --- |
| (GAAP) to United
States GAAP |
| We
have prepared the interim consolidated financial statements according
to Canadian GAAP. The tables that follow are a reconciliation of significant
differences relating to the statement of operations and total shareholders’
equity reported according to Canadian GAAP and United States GAAP. |
| STATEMENTS
OF OPERATIONS |

| For
the period ended September 30 — ($
million, except share amounts) (unaudited) | Three
months — 2004 | | 2003 | | Nine
months — 2004 | | 2003 | |
| --- | --- | --- | --- | --- | --- | --- | --- | --- |
| Canadian
GAAP — Earnings from continuing operations | 102 | | 453 | | 1,131 | | 1,385 | |
| Adjustments | | | | | | | | |
| Deferred
costs (a) | 5 | | 1 | | 11 | | 2 | |
| Employee
future benefits (b) | (20 | ) | (32 | ) | (61 | ) | (95 | ) |
| Derivative
instruments (k) | - | | (16 | ) | - | | (12 | ) |
| Other | - | | (12 | ) | - | | (11 | ) |
| United
States GAAP — Earnings from continuing operations | 87 | | 394 | | 1,081 | | 1,269 | |
| Discontinued
operations — United States GAAP (h) | (2 | ) | 11 | | 86 | | 31 | |
| Cumulative
effect of change in accounting policy (l) | - | | (25 | ) | - | | (25 | ) |
| Unite d
States GAAP — Net earnings | 85 | | 380 | | 1,167 | | 1,275 | |
| Dividends
on preferred shares (k) | (24 | ) | (20 | ) | (70 | ) | (52 | ) |
| Premium
on redemption of preferred shares | - | | - | | - | | (7 | ) |
| United
States GAAP- Net earnings applicable to common shares | 61 | | 360 | | 1,097 | | 1,216 | |
| Other
comprehensive earnings items | | | | | | | | |
| Change
in currency translation adjustment | (14 | ) | (9 | ) | 1 | | (80 | ) |
| Change
in unrealized gain on investments (i) | (224 | ) | 15 | | (11 | ) | 18 | |
| Comprehensive
earnings | (177 | ) | 366 | | 1,087 | | 1,154 | |
| Net
earnings per common share — basic | | | | | | | | |
| Continuing
operations | 0.07 | | 0.41 | | 1.09 | | 1.32 | |
| Discontinued
operations and change in accounting policy | (0.01 | ) | (0.02 | ) | 0.10 | | - | |
| Net
earnings | 0.06 | | 0.39 | | 1.19 | | 1.32 | |
| Net
earnings per common share — diluted | | | | | | | | |
| Continuing
operations | 0.07 | | 0.41 | | 1.09 | | 1.32 | |
| Discontinued
operations and change in accounting policy | - | | (0.02 | ) | 0.09 | | - | |
| Net
earnings | 0.07 | | 0.39 | | 1.18 | | 1.32 | |
| Dividends
per common share | 0.30 | | 0.30 | | 0.90 | | 0.90 | |
| Average
number of common shares | | | | | | | | |
| outstanding
(millions) | 924.6 | | 921.5 | | 924.4 | | 919.3 | |

| Appendix
A — Reconciliation of Canadian Generally Accepted Accounting Principles |
| --- |
| (GAAP) to United
States GAAP |

STATEMENTS OF ACCUMULATED OTHER COMPREHENSIVE LOSS

| ( $
millions) (unaudited) | September
30 — 2004 | | December
31 — 2003 | |
| --- | --- | --- | --- | --- |
| Currency
translation adjustment | (45 | ) | (46 | ) |
| Additional
minimum pension liability (b) | (121 | ) | (121 | ) |
| Unrealized
gain on investments (i) | 5 | | 16 | |
| Accumulated
Other Comprehensive loss | (161 | ) | (151 | ) |

RECONCILIATION OF TOTAL SHAREHOLDERS’ EQUITY

| ($
millions) (unaudited) | September
30 — 2004 | | December
31 — 2003 | |
| --- | --- | --- | --- | --- |
| Canadian
GAAP | 13,879 | | 13,573 | |
| Adjustments | | | | |
| Deferred
costs (a) | (60 | ) | (77 | ) |
| Employee
future benefits (b) | (371 | ) | (260 | ) |
| Gain
on disposal of investments and on reduction | | | | |
| of
ownership in subsidiary companies (c) | 163 | | 163 | |
| Other | 114 | | 132 | |
| Tax
effect of the above adjustments (f) | 23 | | (16 | ) |
| Non-controlling
interest effect of the above adjustments (g) | 61 | | 55 | |
| Discontinued
operations (h) | - | | (58 | ) |
| Unrealized
gain on investments (i) | 5 | | 16 | |
| United
States GAAP | 13,814 | | 13,528 | |

( a) Deferred costs Under Canadian GAAP, certain expenses can be deferred and amortized if they meet certain criteria. Under United States GAAP, these costs are expensed as incurred.

(b) Future benefits for employees The accounting for future benefits for employees under Canadian GAAP and United States GAAP is essentially the same, except for the recognition of certain unrealized gains and losses.

Canadian GAAP requires companies to recognize a pension valuation allowance for any excess of the accrued benefit asset over the expected future benefit. Changes in the pension valuation allowance are recognized in the consolidated statement of operations. United States GAAP does not specifically address pension valuation allowances. The United States regulators have interpreted this to be a difference between Canadian and United States GAAP.

2

| Appendix
A — Reconciliation of Canadian Generally Accepted Accounting Principles |
| --- |
| (GAAP) to United
States GAAP |

The table below shows the components of the net benefit plans cost before taxes and non-controlling interest under United States GAAP:

| | Three
months | | | | | | | | Nine
months | | | | | | | |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| | Pension
benefits | | | | Other benefits | | | | Pension
benefits | | | | Other
benefits | | | |
| For
the period ended September 30 | 2004 | | 2003 | | 2004 | | 2003 | | 2004 | | 2003 | | 2004 | | 2003 | |
| Current
service cost | 58 | | 55 | | 7 | | 8 | | 182 | | 166 | | 23 | | 23 | |
| Interest
cost on accrued benefit obligation | 201 | | 190 | | 26 | | 26 | | 604 | | 568 | | 78 | | 78 | |
| Expected
return on plan assets | (230 | ) | (218 | ) | (2 | ) | (2 | ) | (688 | ) | (654 | ) | (7 | ) | (7 | ) |
| Amortization
of past service costs | 2 | | 2 | | — | | — | | 7 | | 7 | | — | | — | |
| Amortization
of net actuarial losses | 39 | | 45 | | 1 | | — | | 112 | | 129 | | 1 | | — | |
| Amortization
of transitional (asset) obligation | (11 | ) | (11 | ) | 7 | | 7 | | (33 | ) | (33 | ) | 22 | | 22 | |
| Other | — | | — | | — | | — | | — | | (2 | ) | — | | — | |
| Net
benefit plans cost | 59 | | 63 | | 39 | | 39 | | 184 | | 181 | | 117 | | 116 | |

Under United States GAAP, an additional minimum liability is recorded for the excess of the unfunded accumulated benefit obligation over the recorded pension benefits liability. An offsetting intangible asset equal to the unrecognized prior service costs is recorded. Any difference is recorded as a reduction in accumulated other comprehensive income.

(c) Gains or losses on investments Under Canadian GAAP and United States GAAP, gains or losses on investments are calculated in a similar manner. Differences in Canadian GAAP and United States GAAP, however, may cause the underlying carrying value of the investment to be different. This will cause the resulting gain or loss to be different.

(d) Equity income Under Canadian GAAP, we account for our joint venture investment in CGI using the proportionate consolidation method. Effective July 2003, as a result of the new agreement with CGI, we present CGI as an equity investment under United States GAAP. Our proportionate share of CGI’s operating results for the three months and nine months ended September 30, 2004 were:

| • | operating revenues of $277 million and $745 million, respectively, of
which $47 million and $121 million, respectively was with subsidiaries
of BCE Inc |
| --- | --- |
| • | operating
expenses of $239 million and $639 million, respectively of which $5 million
and $19 million, respectively was to subsidiaries of BCE Inc. |
| • | amortization
expense of $14 million and $36 million, respectively |
| • | interest
expense of $1 million and $3 million, respectively |
| • | other
income of $1 million and $3 million, respectively |
| • | income
tax expense of $9 million and $26 million, respectively |
| • | discontinued
operations of nil and $3 million, respectively. |

(e) Interest expense Under Canadian GAAP, convertible debentures are separated into a debt component and an equity component. Over time, the debt component is increased to reach its original face value at maturity by recognizing an accretion expense as part of interest expense. Under United States GAAP, convertible debentures that do not have certain characteristics are recorded as long-term debt and no accretion expense is recognized.

(f) Income taxes The income tax adjustment reflects the impact on income taxes of all of the United States GAAP adjustments that we describe above. The accounting for income taxes under Canadian GAAP and United States GAAP is essentially the same, except that:

| • | income
tax rates of enacted or substantively enacted tax law are used to calculate
future income tax assets and liabilities under Canadian GAAP |
| --- | --- |
| • | only
income tax rates of enacted tax law can be used under United States GAAP. |

3

| Appendix
A — Reconciliation of Canadian Generally Accepted Accounting Principles |
| --- |
| (GAAP) to United
States GAAP |

(g) Non-controlling interest The non-controlling interest adjustment represents the impact of all of the United States GAAP adjustments on non-controlling interest.

(h) Discontinued operations Differences between Canadian GAAP and United States GAAP will cause the historical carrying values of the net assets of discontinued operations to be different.

(i) Change in unrealized gain on investments Our portfolio investments are recorded at cost under Canadian GAAP. They would be classified as “available-for-sale” under United States GAAP and would be carried at fair value with any unrealized gains or losses included in other comprehensive loss, net of tax.

(j) Accounting for stock-based compensation In December 2002, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 148, Accounting for Stock-Based Compensation – Transition and Disclosure . It applies to fiscal years ending after December 15, 2002. It amends the transitional provisions of SFAS No. 123 for companies that choose to recognize stock-based compensation under the fair value-based method of SFAS No. 123, instead of choosing to continue following the intrinsic value method of Accounting Principles Board Opinion (APB) No. 25.

We adopted the fair value-based method of accounting on a prospective basis, effective January 1, 2002.

Under SFAS No. 123, however, we are required to make pro forma disclosures of net earnings, and basic and diluted earnings per share, assuming that the fair value-based method of accounting had been applied from the date that SFAS No. 123 was adopted.

The table below shows the stock-based compensation expense and pro forma net earnings using the Black-Scholes pricing model.

| For
the period ended September 30 (unaudited) | Three
months — 2004 | | 2003 | | Nine
months — 2004 | | 2003 | |
| --- | --- | --- | --- | --- | --- | --- | --- | --- |
| Net
earnings, as reported | 85 | | 380 | | 1,167 | | 1,275 | |
| Compensation
cost included in net earnings | 16 | | 8 | | 40 | | 22 | |
| Total
compensation cost | (18 | ) | (13 | ) | (47 | ) | (38 | ) |
| Pro
forma net earnings | 83 | | 375 | | 1,160 | | 1,259 | |
| Pro
forma net earnings per common share — basic | 0.07 | | 0.39 | | 1.18 | | 1.30 | |
| Pro
forma net earnings per common share — diluted | 0.07 | | 0.39 | | 1.18 | | 1.30 | |

4

| Appendix
A — Reconciliation of Canadian Generally Accepted Accounting Principles |
| --- |
| (GAAP) to United
States GAAP |

(k) Accounting for derivative instruments and hedging activities (SFAS 133) On January 1, 2001, we adopted SFAS 133, Accounting for Derivatives Instruments and Hedging Activities , as amended by SFAS 138. Under this standard, all derivatives must be recorded on the balance sheet at fair value under United States GAAP. In addition, certain economic hedging strategies, such as using dividend rate swaps to hedge preferred share dividends and hedging SCPs, no longer qualify for hedge accounting under United States GAAP.

The change in the fair value of derivative contracts that no longer qualify for hedge accounting under United States GAAP is reported in net earnings.

We elected to settle the dividend rate swaps used to hedge $510 million of BCE Inc. Series AA preferred shares and $510 million of BCE Inc. Series AC preferred shares in the third quarter of 2003. These dividend rate swaps, in effect, converted the fixed-rate dividends on these preferred shares to floating-rate dividends. They were to mature in 2007. As a result of the early settlement, we received total proceeds of $83 million in cash. After the settlement, all of our derivative contracts qualify for hedge accounting.

Under Canadian GAAP, the proceeds are being deferred and amortized against the dividends on these preferred shares over the remaining original terms of the swaps. Under United States GAAP, these dividend rate swaps did not qualify for hedge accounting and were recorded on the balance sheet at fair value. As a result, the amortization of the deferred gain under Canadian GAAP is reversed for United States GAAP purposes.

l) Impact of adopting new accounting standards Consolidation of variable interest entities Effective July 1, 2003, we adopted FASB Interpretation (FIN) No. 46, Consolidation of Variable Interest Entities, on a prospective basis. This interpretation clarifies how to apply Accounting Research Bulletin No. 51, Consolidated Financial Statements, to variable interest entities when equity investors are not considered to have a controlling financial interest or they have not invested enough equity to allow the entity to finance its activities without additional subordinated financial support from other parties.

We determined a transitional loss of $25 million net of tax in the third quarter of 2003. We recorded it as a cumulative effect of a change in accounting policy as of July 1, 2003, as required by the transitional provisions of FIN No. 46. Under Canadian GAAP, the transitional loss is recorded as an adjustment to retained earnings. See Note 1, Significant accounting policies, in our 2003 annual report for a summary of how this affected our consolidated financial statements.

5

Certification of Interim Filings during Transition Period

I, Michael J. Sabia, President and Chief Executive Officer of BCE Inc., certify that:

| 1. | I
have reviewed the interim filings (as this term is defined in Multilateral
Instrument 52-109 Certification of Disclosure in Issuers' Annual and Interim
Filings) of BCE Inc. (the issuer) for the interim period ending September
30, 2004; |
| --- | --- |
| 2. | Based
on my knowledge, the interim filings do not contain any untrue statement
of a material fact or omit to state a material fact required to be stated
or that is necessary to make a statement not misleading in light of the
circumstances under which it was made, with respect to the period covered
by the interim filings; and |
| 3. | Based
on my knowledge, the interim financial statements together with the other
financial information included in the interim filings fairly present in
all material respects the financial condition, results of operations and
cash flows of the issuer, as of the date and for the periods presented
in the interim filings. |

| Dated:
November 2, 2004 |
| --- |
| Michael J. Sabia President and Chief Executive Officer BCE Inc. |

Certification of Interim Filings during Transition Period

I, Siim A. Vanaselja, Chief Financial Officer of BCE Inc., certify that:

| 1. | I have reviewed the interim filings (as this term is defined in Multilateral
Instrument 52-109 Certification of Disclosure in Issuers' Annual and Interim
Filings) of BCE Inc. (the issuer) for the interim period ending September
30, 2004; |
| --- | --- |
| 2. | Based on my knowledge, the interim filings do not contain any untrue statement
of a material fact or omit to state a material fact required to be stated
or that is necessary to make a statement not misleading in light of the
circumstances under which it was made, with respect to the period covered
by the interim filings; and |
| 3. | Based on my knowledge, the interim financial statements together with
the other financial information included in the interim filings fairly
present in all material respects the financial condition, results of operations
and cash flows of the issuer, as of the date and for the periods presented
in the interim filings. |

| Dated:
November 2, 2004 |
| --- |
| Siim A. Vanaselja Chief Financial Officer BCE Inc. |

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

BCE Inc.
(signed) Michael
T. Boychuk
Michael T. Boychuk
Senior Vice-President
and Treasurer
Date: November
3, 2004